Assume, for Japan, that the domestic price of automobiles without international

Question

Assume, for Japan, that the domestic price of automobiles without international trade is lower than the world price of automobiles. This suggests that, in the production of automobiles,

A. Japan has a comparative advantage over other countries and Japan will import automobiles.

B. Japan has a comparative advantage over other countries and Japan will export automobiles.

C. other countries have a comparative advantage over Japan and Japan will import automobiles.

D. other countries have a comparative advantage over Japan and Japan will export automobiles.

Explanation / Answer

Option (B).

Since Japan can produce automobiles at a relatively lower cost than other countries, Japan has a comparative advantage in automobiles. Therefore, Japan should specialize in and export automobiles, as per the law of comparative advantage.

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