Assume that maximum feasible hourly productions levels if all resources are utilized in the United States are either 8 yards of fabric or 4 bushels of wheat. Maximum feasible production levels if all resources are utilized in Japan are either 3 yards of fabric or 6 bushels of wheat. Based on this information
A) beneficial trade is absolutely impossible between the two countries.
B) the United States will benefit from trading but Japan will not.
C) both nations will gain from specialization and trade, with the United States exporting wheat and Japan exporting fabric.
D) both nations will gain from specialization and trade, with the United States exporting fabric and Japan exporting wheat.

Question

Quizplus · Accepted Answer

Specialization and trade allow both countries to maximize their production levels and benefit from each other's strengths. The United States has a comparative advantage in fabric production, so it should export fabric to Japan. Japan has a comparative advantage in wheat production, so it should export wheat to the United States. This will allow both countries to achieve higher levels of consumption beyond their domestic production possibilities. Therefore, both countries will benefit from specialization and trade, with the United States exporting fabric and Japan exporting wheat.

Assume That Maximum Feasible Hourly Productions Levels If All Resources