Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Country A focuses on wine and Country B on cloth; both trade to acquire the goods they lack, leading to increased overall production.
B
Country A produces only wine and Country B produces only cloth, resulting in both countries being unable to meet their own needs.
C
Both countries produce wine and cloth equally without trade, maximizing their individual outputs.
D
Country A produces cloth while Country B focuses on wine, despite neither having a comparative advantage.
Understanding the Answer
Let's break down why this is correct
Answer
To understand the benefits of trade between Country A and Country B, we first look at what each country can produce more efficiently. Country A has an absolute advantage in both wine and cloth since it can produce more of each than Country B. However, to find comparative advantage, we compare their opportunity costs. Country A gives up 1 unit of wine to produce 2 units of cloth, while Country B gives up 1 unit of wine to produce 2 units of cloth as well. This means Country A should specialize in cloth, while Country B should focus on wine, allowing them to trade and enjoy more of both goods than they could produce alone.
Detailed Explanation
When Country A makes wine and Country B makes cloth, they can trade. Other options are incorrect because This option suggests that both countries can't meet their needs; Here, both countries make the same things.
Key Concepts
Absolute Advantage
Comparative Advantage
Opportunity Cost
Topic
Absolute and Comparative Advantage
Difficulty
hard level question
Cognitive Level
understand
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