According to the United States International Trade Commission, the top United St

Question

According to the United States International Trade Commission, the top United States export to China was waste material and the top US import from China was computers. According to the theory of comparative advantage, which of the following statements are certain?

I The opportunity cost of supplying waste material is lower in the United States than in China.

II The opportunity cost of supplying computers is lower in China than in the United States.

III China has an absolute advantage in all goods, because labor costs are so low.

IV Consumers in both countries benefit, because waste material from the United States and computers from China are cheaper than if they were supplied domestically.

V China has a comparative advantage in producing computers.

I & II only.

I, II & III only.

All statements are certain.

I, II, IV & V only.

II & V only.  

Explanation / Answer

The correct answer to the question is option 4. i, ii, iv and v are right.

Us exports waste material and imports computers from China because the opportunity cost of supplying waste material is lower in the USA than in China, on the other hand, the opportunity cost of supplying computer in less in China.

Yes, consumers in both the countries are going to benefit from this because US consumers will get the cheap computers and China will get cheap waste. And China has a comparative advantage in supplying computer.

The wrong option is China has an absolute advantage in both the goods because of cheap labor. In such a scenario China would be exporting both waste and Computers to the US. But exporting computers is more beneficial for the Chinese and importing waste with it.

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