Consider a world of two countries producing only wheat and cloth.If country A uses 1 unit of labour to produce 1 unit of wheat and 2 units of labour to produce 1 unit of cloth,while B uses 3 units of labour per unit of wheat and 4 units of labour per unit of cloth,A should export
A)wheat and cloth,and B should not export anything.
B)wheat,and B should export cloth.
C)nothing,and B should export wheat and cloth.
D)cloth,and B should export wheat.

Question

Quizplus · Accepted Answer

For country A, the opportunity cost of producing 1 unit of wheat is 2 units of cloth (2 cloth/1 wheat) while for country B, the opportunity cost of producing 1 unit of wheat is 4/3 units of cloth (4 cloth/3 wheat). This means that country B has a comparative advantage in producing cloth.

So, if both countries specialize in producing the goods they have a comparative advantage in, country A will produce wheat and country B will produce cloth. Country A will then trade some of its wheat for cloth produced by country B. Therefore, country A will export wheat and country B will export cloth.

Consider a World of Two Countries Producing Only Wheat and Cloth.If