This passage and table describe the opportunity costs faced by two countries.
1 The countries of Grand Coast and Toland are trading partners. The two main goods
traded are timber and fish. Every year the ministers of trade from each country
attend an international conference to discuss issues related to foreign trade and
decide how each country should specialize. The table provides economic data for
one year.
Which statement best describes a key aspect of the trade relationship between Grand Coast and Toland?
Grand Coast can produce fish at a lower opportunity cost than Toland.
This statement highlights the principle of comparative advantage, indicating that Grand Coast sacrifices less in terms of other goods when producing fish compared to Toland. This advantage in fish production enables Grand Coast to specialize and trade effectively, maximizing overall efficiency in their trade relationship.
This statement is incorrect because having an advantage in both goods suggests an absolute advantage rather than a comparative advantage. While Grand Coast may produce more of both goods, it does not necessarily mean it should specialize in both; specialization according to opportunity cost is key in trade.
This statement misidentifies the comparative advantage. For Toland to have a comparative advantage in fish, it would need to sacrifice less in other goods compared to Grand Coast. If Grand Coast can produce fish at a lower opportunity cost, it has the comparative advantage, not Toland.
This statement fails to recognize the specific opportunity costs related to fish production. While Toland may produce timber efficiently, the question focuses on the relationship between fish production and opportunity costs, making this assertion irrelevant to the context of the trade relationship.
This is the correct statement as it directly relates to the concept of comparative advantage. If Grand Coast sacrifices fewer other goods to produce fish, it should specialize in fish production, thereby benefiting both countries through trade.
In the trade relationship between Grand Coast and Toland, understanding opportunity costs is crucial. Grand Coast's ability to produce fish at a lower opportunity cost demonstrates its comparative advantage, allowing for efficient specialization and trade. This principle is fundamental to maximizing benefits from international trade, ensuring that both countries can gain from their respective efficiencies.
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