Question

Country X can cut, prepare, and export lumber using fewer worker hours than Country Y. Country Y can produce lumber but produces cars more efficiently than it produces lumber. It also produces cars more efficiently than Country X. Which of these statements is accurate?
a. Country X will import Country Y's lumber due to absolute advantage
b. Country X will import Country Y's lumber due to comparative advantage
c.Country Y will import Country X's lumber due to comparative advantage
d. Country Y will import Country Y's lumber due to absolute advantage

Answer 1

Answer:

Option (c) is correct.

Explanation:

Comparative advantage states that a country has a comparative advantage in producing a commodity if the opportunity cost of producing that commodity is lower than the other country in terms of other goods. Here, the Country X has a comparative advantage in producing lumber and Country Y has a comparative advantage in producing  cars.

So, Country Y will import lumber from Country X and Country X will import cars from Country Y.