Use the following to answer questions:
Figure: Countries A and B
-(Figure: Countries A and B) Refer to the figure regarding countries A and B. Assume that each country begins by allocating half its labor force to the production of each good. Through trade with each other, each country could increase its consumption of both goods if Country A moved part of its labor force to the production of Good _____ and Country B moved part of its labor force to the production of Good _____.
A) X; X
B) X; Y
C) Y; Y
D) Y; X

Question

Use the following to answer questions:
Figure: Countries A and B 
-(Figure: Countries A and B) Refer to the figure regarding countries A and B. Assume that each country begins by allocating half its labor force to the production of each good. Through trade with each other, each country could increase its consumption of both goods if Country A moved part of its labor force to the production of Good _____ and Country B moved part of its labor force to the production of Good _____.
A) X; X 
B) X; Y 
C) Y; Y 
D) Y; X

Quizplus · Accepted Answer

According to the law of comparative advantage, each country should specialize in producing the good in which they have a lower opportunity cost. From the figure, it is clear that Country A has a lower opportunity cost for producing Good Y while Country B has a lower opportunity cost for producing Good X. Therefore, if Country A moves some of its labor force to the production of Good Y and Country B moves some of its labor force to the production of Good X, both countries could increase their consumption of both goods. Hence, the best choice is D.

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