Use the following to answer questions :
Figure 18-2
-Assume that length AC equals length ac in Figure 18-2 and that $5 = 2 pounds.Then, under free trade, Country A will:
A)produce OA and consume OC.
B)consume OA and produce OC.
C)produce OA and consume OA.
D)produce OB and consume OB.
E)produce OC and consume OC.

Question

Use the following to answer questions :
Figure 18-2 
-Assume that length AC equals length ac in Figure 18-2 and that $5 = 2 pounds.Then, under free trade, Country A will:
A)produce OA and consume OC. 
B)consume OA and produce OC. 
C)produce OA and consume OA. 
D)produce OB and consume OB. 
E)produce OC and consume OC.

Quizplus · Accepted Answer

Under free trade, Country A will specialize in the production of the good for which it has a comparative advantage and then trade to achieve a consumption point beyond its production possibilities frontier. If length AC equals length ac and $5 = 2 pounds, this implies that the opportunity costs of producing goods are equal in both countries, leading to specialization based on comparative advantage. Country A will produce at its comparative advantage (OA) and consume at a point that is more efficient or desirable given trade opportunities (OC).

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