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The domestic opportunity cost of producing a television in the United States is 20 bushels of wheat. In Korea, the domestic opportunity cost of producing a television is 10 bushels of wheat. In this case:_______.
A) Korea has a comparative advantage in the production of wheat.
B) The United States has a comparative advantage in the production of televisions.
C) Mutual gains from trade can be obtained if the United States imports televisions from Korea and Korea imports wheat from the United States.
D) Mutual gains from trade can be obtained if the United States imports wheat from Korea and Korea imports televisions from the United States.

Respuesta :

Edufirst

Answer:

C) Mutual gains from trade can be obtained if the United States imports televisions from Korea and Korea

Explanation:

The opportunity cost of producing a television, in terms of bushels of wheat are:

  • For United States: 20 bushels of wheat
  • For Korea: 10 bushels of wheat.

That means that, comparatively, Korea has a lower opportunity cost than Untides States, i.e. it is cheaper for Korea to produce TV than it is for United States (in terms of wheat):

  • Korea has advantage in the production of TV: hence, the option A is incorrect.
  • United States has advantage in the production of wheat: hence, the option B is incorrect.

When two countries compare the opportunity costs for two goods or services and one country has a comparative advantage (less opportunity cost in term of one of the items) on one item and the other country has the comparative advantage on the other item, both countries can gain from trading those goods: each country should sell the good with the lower comparative opportunity cost. Hence, United States should sell wheat to Korea and Korea should sell televisions to United States. In other words, United States should import televisions from Korea and Korea should import wheat from United States. In conclusion, the correct choice is C.

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