Suppose the United States and Japan are the only two countries and each can produce two goods--wheat and cars.If the United States has an absolute advantage in wheat and Japan has an absolute advantage in cars,we know that
A)there will be no trade because neither country has a comparative advantage in either good.
B)one of the countries will have a comparative advantage in wheat,but we can't tell which one without more information.
C)the United States must have a comparative advantage in cars and Japan in wheat.
D)the United States has a comparative advantage in wheat and Japan has a comparative advantage in cars.

Question

Quizplus · Accepted Answer

Absolute advantage means that a country can produce a good using fewer resources than another country. However, comparative advantage refers to the opportunity cost of producing a good. In this case, the United States may have to give up more cars to produce a unit of wheat compared to Japan, even though it has an absolute advantage in wheat. Similarly, Japan may have to give up more wheat to produce a unit of cars compared to the United States, even though it has an absolute advantage in cars. Therefore, the United States has a comparative advantage in wheat and Japan has a comparative advantage in cars, leading to gains from trade if they specialize in producing and trading the good in which they have a comparative advantage.

Suppose the United States and Japan Are the Only Two