Use the table below to answer the following question.The table outlines the production possibilities for two hypothetical countries.

Which of the following statements is true?
A)Redland has a comparative advantage in producing oats.
B)Redland enjoys a comparative advantage in producing both products and could not gain from exchange.
C)Redland should specialize in producing mutton and should trade for oats.
D)In this example,Blueland has nothing to gain through trade with Redland.

Question

Use the table below to answer the following question.The table outlines the production possibilities for two hypothetical countries.

Which of the following statements is true?
A)Redland has a comparative advantage in producing oats. 
B)Redland enjoys a comparative advantage in producing both products and could not gain from exchange. 
C)Redland should specialize in producing mutton and should trade for oats. 
D)In this example,Blueland has nothing to gain through trade with Redland.

Quizplus · Accepted Answer

Based on the production possibilities, Redland has a lower opportunity cost for producing mutton compared to oats (1 unit of mutton requires sacrificing only 0.5 units of oats, whereas 1 unit of oats requires sacrificing 2 units of mutton). Therefore, Redland has a comparative advantage in producing mutton and should specialize in producing it. Blueland, on the other hand, has a comparative advantage in producing oats and should specialize in producing it. This will enable both countries to trade and benefit from each other's specialization. Blueland can trade oats for mutton with Redland, and both countries can consume more of both goods than they could produce alone. Thus, statement C is true. Statements A, B, and D are incorrect.

Use the Table Below to Answer the Following Question