If the United States could produce 1 ton of potatoes or 1 ton of wheat per worker per year, while Ireland could produce 3 tons of potatoes or 2 tons of wheat per worker per year, there can be mutual gains from trade if:

Question

Quizplus · Accepted Answer

Comparative advantage is determined by the opportunity cost of producing a good or service. In this scenario, the United States has a lower opportunity cost for producing wheat compared to potatoes (1 ton of wheat = 1 ton of potatoes, while in Ireland, 1 ton of wheat = 1.5 tons of potatoes). Therefore, the United States should specialize in producing wheat and trade with Ireland for potatoes. This will result in mutual gains from trade as both countries can obtain more of the goods they desire at a lower opportunity cost. Choice A (specializing in potatoes) would not result in mutual gains from trade as Ireland already has a comparative advantage in potatoes. Choice B (specializing in wheat because of absolute advantage) is incorrect because absolute advantage does not necessarily lead to mutual gains from trade. Finally, choice D (no mutual gains from trade) is incorrect because there can be mutual gains from trade if countries specialize in producing goods in which they have a comparative advantage.

If the United States Could Produce 1 Ton of Potatoes