Assume Australia can use a given amount of its resources to produce either 20 caravans or eight automobiles and Japan can employ the same amount of its resources to produce either 20 caravans or 10 automobiles. Australia should specialise in:

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Quizplus · Accepted Answer

Australia has a comparative advantage in producing caravans because it can produce 20 caravans with the same amount of resources it takes to produce only eight automobiles. This means that Australia can produce more caravans at a lower opportunity cost compared to Japan. Conversely, Japan has a comparative advantage in producing automobiles because it can produce 10 automobiles with the same amount of resources it takes to produce only 20 caravans. As a result, it is better for Australia to specialize in producing caravans and trade with Japan for automobiles, as both countries would benefit from the trade.

Assume Australia Can Use a Given Amount of Its Resources