Countries A and B currently consume 400 units of food and 400 units of textiles each and currently do not trade with one another.The citizens of country A have to give up one unit of food to gain two units of textiles,while the citizens of country B have to give up one unit of textiles to gain two units of food.Their production possibilities curves are shown. Under the theory of comparative advantage

Question

Countries A and B currently consume 400 units of food and 400 units of textiles each and currently do not trade with one another.The citizens of country A have to give up one unit of food to gain two units of textiles,while the citizens of country B have to give up one unit of textiles to gain two units of food.Their production possibilities curves are shown.  Under the theory of comparative advantage

Quizplus · Accepted Answer

Country A has a comparative advantage in producing food since they have a lower opportunity cost in terms of textiles forgone (1 food for 2 textiles) compared to Country B (1 textile for 2 food). On the other hand, Country B has a comparative advantage in producing textiles since they have a lower opportunity cost in terms of food forgone (1 textile for 2 food) compared to Country A (1 food for 2 textiles). Therefore, it is beneficial for both countries to specialize in their respective comparative advantages and trade with each other. Country A can produce more textiles and trade with Country B for food, while Country B can produce more food and trade with Country A for textiles. This will result in both countries being able to consume more than what their production possibilities curves indicate without trade.

Countries a and B Currently Consume 400 Units of Food