Figure 3-9

-Refer to Figure 3-9.Azerbaijan should specialize in the production of
A) bolts and import nails.
B) nails and import bolts.
C) both goods and import neither good.
D) neither good and import both goods.

Question

Figure 3-9
 
-Refer to Figure 3-9.Azerbaijan should specialize in the production of
A) bolts and import nails. 
B) nails and import bolts. 
C) both goods and import neither good. 
D) neither good and import both goods.

Quizplus · Accepted Answer

According to the principle of comparative advantage, a country should specialize in the production of the good in which it has a lower opportunity cost compared to the other country. In this scenario, Azerbaijan has a lower opportunity cost in producing nails, as evidenced by its lower domestic production cost ($1 per unit) compared to the foreign country's production cost ($2 per unit). Therefore, Azerbaijan should specialize in producing nails and import bolts, which has a higher comparative cost of production for Azerbaijan.

Figure 3-9 -Refer to Figure 3-9.Azerbaijan Should Specialize in the Production of in the Production