New SIDBI Grade A New Batch Starts on Nov 18

    Register

    Question

    Country A can produce 10 units of cloth or 20 units of wheat per day. Country B can produce 15 units of cloth or 15 units of wheat per day. Which of the following statements is true?

    A Country A has a comparative advantage in producing cloth. Correct Answer Incorrect Answer
    B Country B has a comparative advantage in producing wheat Correct Answer Incorrect Answer
    C Country A has a comparative advantage in producing wheat Correct Answer Incorrect Answer
    D Country B has a comparative advantage in producing both goods. Correct Answer Incorrect Answer

    Solution

    To determine comparative advantage, we need to compare the opportunity costs. For Country A: Opportunity cost of 1 unit of cloth = 2 units of wheat (since 10 cloth = 20 wheat). Opportunity cost of 1 unit of wheat = 0.5 units of cloth. For Country B: Opportunity cost of 1 unit of cloth = 1 unit of wheat. Opportunity cost of 1 unit of wheat = 1 unit of cloth. Since the opportunity cost of producing wheat is lower in Country A (0.5 units of cloth) compared to Country B (1 unit of cloth), Country A has a comparative advantage in producing wheat.

    Practice Next