Assume that maximum feasible hourly productions levels if all resources are util
ID: 1173806 • Letter: A
Question
Assume that maximum feasible hourly productions levels if all resources are utilized in the United States are either 8 yards of fabric or 4 bushels of wheat. Maximum feasible production levels if all resources are utilized in Japan are either 3 yards of fabric or 6 bushels of wheat. Based on this information A. the United States will benefit from trading but Japan will not. B. both nations will gain from specialization and? trade, with the United States exporting wheat and Japan exporting fabric. C. beneficial trade is absolutely impossible between the two countries. D. both nations will gain from specialization and? trade, with the United States exporting fabric and Japan exporting wheat.
Explanation / Answer
United States can maximum produce 8 yards of fabric or 4 bushels of wheat and for Japan the same production is 3 yards of fabric or 6 bushels of wheat. This implies that the opportunity cost of 1 yard of fabric is 4/8 or 0.5 bushels of wheat for United States and 6/3 = 2 bushels of wheat for Japan. This implies that United States has comparative advantage in fabric and Japan has comparative advantage in wheat.
Correct choice based on trade which is guided by the comparative advantage is D. both nations will gain from specialization and? trade, with the United States exporting fabric and Japan exporting wheat.