Assume that the opportunity cost of producing wheat is lower in Australia compared with Malaysia. Further assume that the opportunity cost of producing cars is higher in Australia compared with Malaysia. Which country should specialise in producing cars?

Question

Quizplus · Accepted Answer

Since the opportunity cost of producing cars is higher in Australia compared with Malaysia, and Malaysia has a comparative advantage in producing wheat, it would be best for Australia to specialize in producing wheat and for Malaysia to specialize in producing cars. This way, both countries can benefit from trade based on their respective comparative advantages.

Assume That the Opportunity Cost of Producing Wheat Is Lower