CA Foundation P4 · Chapter 9 · Question 3 of 15
Labour hours required to produce one unit: Country X: cloth 10 hours, wheat 20 hours Country Y: cloth 15 hours, wheat 45 hours According to Ricardo's theory of comparative advantage:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) X should specialise in wheat and Y in cloth
Explanation
Opportunity cost of 1 wheat in X = 20/10 = 2 cloth; in Y = 45/15 = 3 cloth. X has the lower opportunity cost of wheat. Opportunity cost of 1 cloth in X = 10/20 = 0.5 wheat; in Y = 15/45 = 0.33 wheat, so Y has the comparative advantage in cloth. Absolute advantage in both goods does not prevent mutually beneficial trade.
More International Trade MCQs
- Q5An ad valorem import tariff of 15% is levied on a machine with an assessable value of Rs. 40,000. The tariff payable is:
- Q6Which of the following is a non-tariff measure?
- Q7In international trade, 'dumping' refers to:
- Q8The World Trade Organization (WTO), which replaced GATT, came into existence on:
- Q9The 'Most-Favoured-Nation' (MFN) principle of the WTO requires that: