In the Figure Given Below AB Is the Production-Possibility Curve

question 29

Multiple Choice

In the figure given below AB is the production-possibility curve of Canada. In the absence of trade, the price ratio is 1 bushel of wheat/bale of cotton as shown by the line PQ. The international price ratio is 0.25 bushels of wheat/bale of cotton as shown by the line RS. I₁ and I₂ are the pre-trade and the post trade community indifference curves of Canada respectively. Which of the following can be inferred from this figure?

• A)Canada has a comparative advantage in the production of wheat.
• B)Canada has a comparative advantage in the production of cotton.
• C)Canada has an absolute disadvantage in the production of both the goods.
• D)Canada has absolute advantage in the production of both the goods.

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