Question

12. Country A's opportunity cost of producing 1 ton of corn is 5 tons of wheat , while Country B's opportunity cost of producing 1 ton of corn is 1/3 of a ton of wheat. Which of the following statements is true? a. Country A should specialize in producing corn, while Country B should specialize in producing b. Country B should specialize in producing corn, while Country A should specialize in producing C. There will be no gains from trade if these two countries exchange goods. d. Both countries should produce both goods. wheat. wheat

Answer 1

Answer:

Correct answer is option b = country B should specialise in producing corn, while company A should specialise in producing wheat.

Explanation

Country A's opportunity cost of producing 1 ton of corn is 5 ton of wheat and

Country B's opportunity cost of producing 1 ton of corn is 1/3 ton of wheat.

So , if country A specialises in wheat, it can produce 5 ton of wheat and buy one ton of corn from country B by exchanging more than 1/3 ton of wheat .

In the same way , if country B specialises in corn , it can produce 1 ton of corn and buy one ton of wheat by exchanging more than 1/5 ton of corn.

This way both countries can benefit by trade.

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