Karl Can Produce Either 10 Tons of Oranges or 5

question 3

Multiple Choice

Karl can produce either 10 tons of oranges or 5 tons of apples in a year, while Adam can produce either 5 tons of oranges or 10 tons of apples. If there are only two goods in the world-apples and oranges-and the exchange rate between apples and oranges in international markets is 1 ton of apples per 3 tons of oranges, which of the following is likely to be true?

• A)Karl and Adam will not trade apples and oranges with one another, since both will specialize in and export oranges to other countries.
• B)Karl and Adam will not trade apples and oranges with one another, since both will specialize in and export apples to other countries.
• C)Karl has a comparative advantage in oranges and will specialize in only oranges.
• D)Adam has a comparative advantage in oranges and will specialize in only oranges.
• E)Karl has an absolute advantage in apples and will specialize in only apples.

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Definitions:

Quantity Supplied

The total amount of a good or service that producers are willing and able to sell at a given price over a specific period.

Quantity Demanded

The aggregate quantity of a product or service that buyers are prepared and capable of buying at a certain price point.

Equilibrium Price

The cost at which the amount of a product or service that consumers want to buy matches the amount that producers are willing to sell, creating a balanced market situation.

Demand

The quantity of a product or service that consumers are willing and able to purchase at various price levels, at a given point in time.