Consider a world of two countries facing opportunity costs and producing only wheat and cloth. In one hour, residents of Country A can produce a maximum of either 1 unit of wheat or 0.5 unit of cloth, whereas residents of Country B can produce a maximum of either 0.3 unit of wheat or 0.4 unit of cloth. Country B should export
A) wheat and cloth; country A should not export anything.
B) wheat and country A should export cloth.
C) nothing and country A should export both wheat and cloth.
D) cloth and country A should export wheat.

Question

Quizplus · Accepted Answer

Country B has a comparative advantage in producing cloth and should therefore specialize in cloth production and export it. Country A has a comparative advantage in producing wheat and therefore should specialize in wheat production and export it. Therefore, Country A should export wheat and Country B should export cloth, making option D the correct choice.

Consider a World of Two Countries Facing Opportunity Costs and Producing