Answered: Home has a comparative advantage in…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Home has a comparative advantage in wheat, and Foreign has a comparative advantage in cloth. Once trade occurs, Home produces 1,500 bushels of wheat, and Foreign produces 1,000 yards of cloth. The following table shows the amount of wheat that Home is willing to trade to acquire more cloth. the international price of cloth is 1.5 bushels of wheat per yard, how many bushels of wheat will Home export to Foreign? Select one: a. 550 bushels b. 800 bushels c. 1,050 bushels d. 700 bushels

Home's Wheat Foreign's Cloth
Exports
Exports
(in bushels)
(in yards)
400
200
550
300
700
400
800
500
950
600
1050
700
1105
800

Definition Video Definition Ability of a country to produce goods and services at a lower opportunity cost compared to other countries. Here, opportunity cost refers to the forgone units of one good in order to produce one more unit of another good. For example, the opportunity cost of producing good X in country A is 2Y and in country B is 1.25Y. Country B has a lower opportunity cost of producing good X than country A. Therefore, country B has a comparative advantage in the production of good X. Video

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