Suppose that Korea produces shoes and soccer balls. Which of the following is correct?
A)It should specialize in the product in which it has an absolute advantage.
B)It would NOT be possible to have an absolute advantage in both goods.
C)It would be difficult to benefit from trade since Korea is efficient in the production of both goods.
D)The opportunity cost of shoes will be the inverse of its opportunity cost of soccer balls.

Question

Quizplus · Accepted Answer

According to the principle of comparative advantage, a country should specialize in the production of the good in which it has a lower opportunity cost. Therefore, if Korea has a lower opportunity cost of producing shoes compared to soccer balls, it should specialize in the production of shoes. The opportunity cost of producing shoes is the inverse of the opportunity cost of producing soccer balls, making option D correct. It is possible to have an absolute advantage in both goods, making option B incorrect. Efficient production in both goods does not make trade difficult, as specialization and trade can still lead to gains from trade, making option C incorrect. Finally, option A is incorrect because a country should specialize in the good in which it has a comparative advantage, not an absolute advantage.

Suppose That Korea Produces Shoes and Soccer Balls