Assume That Two Countries (Home and Foreign) Each Produce Two

question 153

Multiple Choice

Assume that two countries (Home and Foreign) each produce two goods (corn and wheat) under constant cost production. Home produces 0.5 ton of corn or 1 ton of wheat with a day of labor. Without trade (in autarky) , Home's daily production is 20 tons of wheat and 10 tons of corn. Now suppose that Home has the opportunity to trade with Foreign at an international price of 1 ton of wheat per ton of corn. In which product will Home find its comparative advantage?

• A) wheat
• B) corn
• C) Home will find its competitive advantage in neither corn nor wheat.
• D) Home will find its competitive advantage in both corn and wheat.

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Definitions:

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