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Basic Question 5 of 15
Units of output per work day:
B. Joint output would be maximized if the United States specialized in producing clothing and Japan specialized in producing food.
C. Joint output would be maximized if the United States specialized in food production and Japan specialized in clothing production.
Which of the following is true?
A. Gains from trade are greatest if both Japan and the U.S. produce both goods.
B. Joint output would be maximized if the United States specialized in producing clothing and Japan specialized in producing food.
C. Joint output would be maximized if the United States specialized in food production and Japan specialized in clothing production.
User Contributed Comments 5
| User | Comment |
|---|---|
| smillis | How is this clear if we don't know what the exchange between food and clothing will be? |
| Charlie | you don't need to know the exchange rate between the 2. |
| treakj | It won't make sense if, for example, the trade is 3 clothes by 1 food. In this way, it will be irrelevant to US to produce food or to import food from Japan. But for Japan, it will make sense to sell 1 food and get 3 food or less (but more than 2). The result is, the exchange rate will be forced to move to somewhere between 3:1 and 2:1, hence the comparative advantage will exist and will make the both countries outputs increase. |
| Nightsurfer | treakj: I think you've missed the point. |
| Hermalia | You have to look at who has the smallest opportunity cost for each good. |
I am happy to say that I passed! Your study notes certainly helped prepare me for what was the most difficult exam I had ever taken.
Andrea Schildbach
Learning Outcome Statements
describe the benefits and costs of international trade
CFA® 2024 Level I Curriculum, Volume 1, Module 6.