Free International Trade Quiz: Comparative Advantage, Tariffs, Balance of Payments, Exchange Rates and Terms of Trade

International Trade, Exchange Rates, Balance of Payments, and Development Issues

Question 1 of 5

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The table shows the output one worker can produce per day in the United States and in Country Z. Labour is the only factor of production, and costs are constant.

Country	Wheat (tons per worker per day)	Cloth (bolts per worker per day)
United States	6	4
Country Z	2	3

Which statement about specialisation and trade is correct?

Select one option.

The United States should specialise in wheat and Country Z in cloth; both gain at any terms of trade between 2/3 and 3/2 bolts of cloth per ton of wheat
The United States should produce both goods, because it has an absolute advantage in both, so trade cannot benefit it
The United States should specialise in cloth and Country Z in wheat; both gain at terms of trade of 1 bolt of cloth per ton of wheat
The United States should specialise in wheat and Country Z in cloth; both gain at terms of trade of 2 bolts of cloth per ton of wheat
Country Z has a comparative advantage in both goods, because its workers are less productive and therefore cheaper

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