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Scenario: Countries A and B
Two countries, A and B, produce two goods, wheat (W) and steel (S). Each has a linear production possibility frontier in both goods. If country A spends all of its available resources to produce wheat, it can produce 500 tons of wheat and no steel. If it uses all of its resources to produce steel, it can produce 250 tons of steel and no wheat. If country B spends all of its available resources producing wheat, it can produce 400 tons of wheat, and if it spends all of its resources on the production of steel, it can produce 400 tons of steel.
-(Scenario: Countries A and B) Look at the scenario Countries A and B. Given this information, country _____ has a comparative advantage in the production of wheat, and country _____ has a comparative advantage in the production of steel.
A)A; A
B)A; B
C)B; B
D)B; A

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Quizplus · Accepted Answer

Country A has a lower opportunity cost of producing wheat compared to steel (it can produce more wheat), indicating a comparative advantage in wheat production. Country B has an equal opportunity cost for producing both goods, but since it can produce the same amount of steel as wheat, it has a comparative advantage in steel production as it has a higher capability to produce it than country A.

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