Asked by Miriam Petit on May 05, 2024
Verified
Nation A pays lower wages to workers than Nation B. Nation A also uses fewer capital goods per worker than Nation B. This suggests that gains from trade are likely to result if
A) Nation A produces products that are more capital-intensive and exports them to Nation B in return for products from Nation B that are more labor-intensive.
B) Nation A produces products that are more labor-intensive and exports them to Nation B in return for products from Nation B that are more capital-intensive.
C) Nation B produces products that are more labor-intensive and exports them to Nation A in return for products from Nation A that are more capital-intensive.
D) Nations A and B each produce capital-intensive and labor-intensive goods and trade them with each other.
Capital-Intensive
A type of industry or business that requires large amounts of capital investment in comparison to labor to produce goods or services.
Labor-Intensive
A term describing industries or businesses that require a large amount of human labor relative to capital equipment to produce goods or services.
- Evaluate the role of a nation's resource provision in shaping its trade dynamics.
- Expound on the terms of trade and their capacity to reveal comparative advantages among nations.
Verified Answer
KM
kevin mabiriziMay 10, 2024
Final Answer :
B
Explanation :
If Nation A has a comparative advantage in producing goods that are more labor-intensive, then it should specialize in producing those goods and trade with Nation B, which has a comparative advantage in producing goods that are more capital-intensive. This will lead to gains from trade for both nations as they will be able to produce at a lower opportunity cost and benefit from trading the goods that they have a comparative advantage in.
Learning Objectives
- Evaluate the role of a nation's resource provision in shaping its trade dynamics.
- Expound on the terms of trade and their capacity to reveal comparative advantages among nations.
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