Question

(Table: Home and Foreign Prices for Manufacturing and Agriculture) Consider the information provided about the price...

(Table: Home and Foreign Prices for Manufacturing and Agriculture) Consider the information provided about the price of agriculture and manufacturing goods in two countries (Home and Foreign). If the two countries open their markets for trade, then:

Home Foreign
Pm $5 Pm* $7
Pa $3 Pa* $3

a

Home has the comparative advantage in agriculture.

b

Home has the comparative advantage in manufacturing.

c

Foreign has absolute advantage in both goods.

d

Foreign has a comparative advantage in manufacturing.

The correct answer is b. Please provide the explanation why.

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Homework Answers

Answer #1

Yes Option B is the correct answer

Because , if we look at the price of manufacturing and agriculture , price is same for agriculture which means that for agriculture none have the comaprative advnatge for agriculture good over the other but in case of Home country the price of manufacturing goods is lower than the price of manufacturing good (pm*) in foreign country and So is the concept of comparative advantage which says that when a country ahs a comparative advantage when a good can be produced at a lower cost in term of other goods from what foreign country good costs .So Home country here has comparative advnatge in manufacturing over foreign country .Hence Option B is the correct answer .

Have a good day !

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