Based on Table 3.1,if the world price of computers is four pairs of shoes,then the optimal strategy for each country would be
A)to specialize in shoes.
B)to specialize in computers.
C)for Mexico to specialize in shoes, and the United States in computers.
D)for the United States to specialize in shoes, and Mexico in computers.

Question

Quizplus · Accepted Answer

According to Table 3.1, the opportunity cost of producing one pair of shoes in the United States is 1/3 computers, while in Mexico, it is 1/2 computers. If the world price of computers is four pairs of shoes, then Mexico would be able to trade one computer for two pairs of shoes (1/2 of 4), and the United States would be able to trade one computer for three pairs of shoes (1/3 of 4). Therefore, both countries would be better off specializing in producing and trading the good in which they have a comparative advantage, which in this case is computers for the United States and shoes for Mexico. Thus, the optimal strategy for each country would be to specialize in their respective comparative advantage and trade with each other.