Question

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

Answer 1

Answer:

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

Explanation:

Korea has a comparative advantage over the US in the manufacturing of television units, while the US has a comparative advantage over Korea in the production of wheat. Therefore if they trade between each other they can both benefit from this situation. If Korea and the US are able to trade TVs for wheat at a the following price levels:

10 bushels of wheat ≤ TV ≤ 20 bushels of wheat