Suppose That Paraguay and Guyana Are Both Engaged in the Production

question 241

Multiple Choice

Suppose that Paraguay and Guyana are both engaged in the production of soybeans and grapefruit, and that Paraguay has an absolute advantage in the production of both goods. If Guyana has a comparative advantage in the production of soybeans, then Guyana

• A) has a higher opportunity cost for soybeans, which means it should specialize in the production of grapefruit and engage in trade.
• B) has a lower opportunity cost for producing soybeans, but specialization is not feasible because Paraguay has a lower monetary cost of soybean production.
• C) has a lower opportunity cost for soybeans, which means that it should specialize in production of soybeans and engage in trade.
• D) should continue to produce soybeans, but only for domestic consumption, because trade is not a viable option.

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Definitions:

Owner's Capital

The total equity claimed by the owner of a sole proprietorship or partnership, reflecting the residual assets of the business after liabilities.

Income Summary

An account in which the revenues and expenses are transferred at the end of an accounting period to determine the net income or loss.

Owner's Capital

The amount of money and other assets invested in a business by its owner or owners.

Owner's Drawings

The withdrawal of business assets by the owner for personal use.