Suppose the world economy is composed of just two countries: A and B.Each can produce steel or chemicals but at different levels of economic efficiency.The domestic production possibilities curves are shown in the graphs below Refer to the above graphs and information.The opportunity costs of producing steel and chemicals in the two countries are:

Question

Suppose the world economy is composed of just two countries: A and B.Each can produce steel or chemicals but at different levels of economic efficiency.The domestic production possibilities curves are shown in the graphs below  Refer to the above graphs and information.The opportunity costs of producing steel and chemicals in the two countries are:

Quizplus · Accepted Answer

The opportunity costs of producing steel and chemicals are different across the two countries because their domestic production possibilities curves are different. Country A has a comparative advantage in producing steel, while country B has a comparative advantage in producing chemicals. Therefore, to maximize their total output and efficiency, both countries should specialize in their respective area of comparative advantage and trade with each other.

Suppose the World Economy Is Composed of Just Two Countries