Chapter 4, Problem 4MCQ

To determine

The question requires us to determine the country that imports wheat and textiles.

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.

If two countries specialize and trade with each other then country A will produce wheat and import textile from country B while country B will produce textiles and import wheat from country A.

Therefore, option “d” is correct.