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
The opportunity cost of producing a bushel of wheat in country B
The opportunity cost of producing textiles in country A
The opportunity cost of producing textiles in country B
The opportunity cost of wheat production in country A is lower. Thus, country A has a
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.
Chapter 4 Solutions
Krugman's Economics For The Ap® Course
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