The table below shows units of wheat and cloth produced by each worker per day in both the countries. Table 20.1 Refer to Table 20.1.Which of the following assumptions holds true for the example?

Question

The table below shows units of wheat and cloth produced by each worker per day in both the countries. Table 20.1  Refer to Table 20.1.Which of the following assumptions holds true for the example?

Quizplus · Accepted Answer

The table only shows labor productivity in each country and does not provide information about other factors of production. Therefore, assumption A is not necessarily true. Assumption C is also not necessarily true as it depends on the terms of trade and opportunity costs. Assumption D is not true as the table shows different levels of productivity for each country. Assumption E is not relevant to the example provided. Thus, the best assumption is that labor productivity alone determines comparative advantage, which is the basis of the theory of comparative advantage.

The Table Below Shows Units of Wheat and Cloth Produced