Chapter 4, Problem 3MCQ

To determine

The question requires us to determine the country which has a comparative advantage in producing each good.

Explanation of Solution

The following graph represents the production of wheat and textile in country A and country B:

Country	Wheat (bushels)	Textile
Country A	200	100
Country B	100	150

From the given table:

The opportunity cost of producing a bushel of wheat in country A

  $\begin{array}{l}=\frac{100}{200}\\ =\frac{1}{2}\text{unit of textile}\end{array}$

The opportunity cost of producing a bushel of wheat in country B

  $\begin{array}{l}=\frac{150}{100}\\ =1.5\text{unit of textile}\end{array}$

The opportunity cost of producing textiles in country A

  $\begin{array}{l}=\frac{200}{100}\\ =2\text{bushels of wheat}\end{array}$

The opportunity cost of producing textiles in country B

  $\begin{array}{l}=\frac{100}{150}\\ =0.66\text{bushels of wheat}\end{array}$

The opportunity cost of wheat production in country A is lower. Thus, country A has a comparative advantage in wheat production.

The opportunity cost of textile production in country B is lower. Thus, country B has a comparative advantage in textile production.

Therefore, option “a” is correct.

Economics Concept Introduction

The country with a lower opportunity cost of producing a product will have a comparative advantage in producing that product. A lower opportunity cost indicates a less quantity of foregone goods a country has to sacrifice to produce a particular product.