Use the following to answer question(s): The Production of Tires and Radios

-(Exhibit: The Production of Tires and Radios) Assuming constant costs in the neighborhood of their current levels of production, the exhibit shows the number of tires each country would have to forgo in order to produce the additional radios indicated.Further assume that the only input is labor and that it remains fully employed.Assume that there is unrestricted trade and complete specialization.According to comparative advantage, country:

Question

Use the following to answer question(s): The Production of Tires and Radios
 
-(Exhibit: The Production of Tires and Radios) Assuming constant costs in the neighborhood of their current levels of production, the exhibit shows the number of tires each country would have to forgo in order to produce the additional radios indicated.Further assume that the only input is labor and that it remains fully employed.Assume that there is unrestricted trade and complete specialization.According to comparative advantage, country:

Quizplus · Accepted Answer

According to the principle of comparative advantage, each country should specialize in the production of the good in which they have a lower opportunity cost. In this case, Country Y has a lower opportunity cost in producing radios since it has to give up fewer tires per unit of radio produced compared to Country X. Therefore, Country Y should specialize in the production of radios and export them, while Country X should specialize in the production of tires and export them. This means that Country Y would export tires and import radios, and Country X would import radios and export tires. So, Option C is the correct answer.

Use the Following to Answer Question(s): the Production of Tires