In the United States, one worker can produce 10 tons of steel per day or 20 tons of chemicals per day. In the United Kingdom, one worker can produce 5 tons of steel per day or 15 tons of chemicals per day. If trade occurs between the United States and the United Kingdom, American firms should specialize in producing:
A) steel.
B) chemicals.
C) neither steel nor chemicals.
D) both steel and chemicals.

Question

Quizplus · Accepted Answer

The United States has an absolute advantage in producing both steel and chemicals compared to the United Kingdom. However, the comparative advantage, which determines trade specialization, is based on opportunity cost. The U.S. has a lower opportunity cost in producing steel (1 ton of steel costs 2 tons of chemicals) compared to the UK (1 ton of steel costs 3 tons of chemicals), making steel the U.S.'s comparative advantage and the product it should specialize in.

In the United States, One Worker Can Produce 10 Tons