📚 Learning Guide
Comparative and Absolute Advantage
hard

In international trade, if Country A can produce cars more efficiently than Country B, but Country B has a lower opportunity cost in producing textiles, how should both countries engage in trade to benefit from their comparative advantages?

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Learning Path

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Choose the Best Answer

A

Country A should produce both cars and textiles.

B

Country A should focus on cars while Country B specializes in textiles and they trade accordingly.

C

Both countries should produce cars and textiles equally.

D

Country B should stop producing textiles altogether.

Understanding the Answer

Let's break down why this is correct

Answer

In international trade, countries benefit by focusing on what they can produce most efficiently and trading for what they cannot produce as well. If Country A can make cars more efficiently than Country B, it should specialize in car production. Meanwhile, if Country B has a lower opportunity cost for making textiles, it should focus on producing textiles. By trading cars for textiles, both countries can enjoy more cars and textiles than if they tried to produce both on their own. For example, if Country A produces 10 cars and Country B produces 20 textiles, they can trade a few cars for textiles, allowing both to enjoy a greater variety of goods.

Detailed Explanation

Country A should make cars since it does that best. Other options are incorrect because This idea suggests one country should do everything; This option thinks both countries should split their work equally.

Key Concepts

trade decisions
international trade
market dynamics
Topic

Comparative and Absolute Advantage

Difficulty

hard level question

Cognitive Level

understand

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