Question

Suppose that a worker in Cornland can grow either 40 bushels of corn or 10 bushels of oats per year, and a worker in Oatland can grow either 20 bushels of corn or 5 bushels of oats per year. There are 20 workers in Cornland and 20 workers in Oatland. Which of the following statements is true?
A. Both countries could gain from trade with each other.
V. Neither country could gain from trade with each other because Cornland has an absolute advantage
in both goods.
C. Oatland could gain from trade between the two countries, but Cornland definitively would lose.
D. Neither country could gain from trade with each other because neither one has a comparative
advantage.

Answer 1

Answer:

D. Neither country could gain from trade with each other because neither one has a comparative advantage

Explanation:

Opportunity cost refers to the units sacrificed from production of one good to produce an extra unit of another good.

In the given case, the number of workers are same.

The opportunity cost for producing corn instead of oats by Cornland would be : 10/40 units of oats =  0.4 units of oats

Similarly, the opportunity cost for producing corn by Oatland = 5/ 20 = 0.4 units of oats

Similarly, the opportunity cost for producing oats by Cornland = 4 units of corn

Opportunity cost for producing oats by Oatland = 4 units of corn.

As can be seen, none of the two i.e Cornland or Oatland enjoys a comparative advantage over other since for both, the opportunity cost is the same.

Hence, neither country would gain out of trade.