Refer to diagram \'Figure A\' As a result of specialization and trade, Country A
ID: 1210633 • Letter: R
Question
Refer to diagram 'Figure A'
As a result of specialization and trade, Country A’s consumption possibilities curve shifts from AA to AB; so we conclude that Country A
A) has a comparative advantage in shoes and a comparative disadvantage in televisions.
B) has a comparative advantage in television and should specialize in the production of shoes.
C) has a comparative disadvantage in shoes and could increase welfare by specializing in the production of televisions.
D) should produce 60 televisions and 40 shoes.
E) none of the above.
Explanation / Answer
B) has a comparative advantage in television and should specialize in the production of shoes.
Trade has led to increase in consumption of shoes which means shoes are being imported. This implies that A has comparative advantage in Television.