Labour cost (in days) of production of one unit of good 'a' and 'b' in countries 1 and 2 is given as…
"Only (a) and (b) are correct." In the Ricardian comparative-cost table, country 1 has a comparative advantage in good 'a' over good 'b' when its relative labour cost ratio…
Choose your answer
Labour cost (in days) of production of one unit of good 'a' and 'b' in countries 1 and 2 is given as under :
| a | b | |
|---|---|---|
| 1 | a_1 | b_1 |
| 2 | a_2 | b_2 |
Which of the following statement/s is/are correct ? Select the correct answer using codes given below :
(a) It will pay country 1 to specialize in production of good 'a' for good 'b' if a_1/a_2 < b_1/b_2.
(b) Country 1 will export good 'a' and import good 'b' if a_1/b_1 < a_2/b_2.
(c) If a_1/a_2 < b_1/b_2, cost of good 'a' relative to good 'b' is more in country 1 than in country 2.
Answer and explanation
Correct answer B
"Only (a) and (b) are correct." In the Ricardian comparative-cost table, country 1 has a comparative advantage in good 'a' over good 'b' when its relative labour cost ratio satisfies (statement (a)), which is algebraically equivalent to having a lower domestic opportunity cost of good 'a' in terms of good 'b', , so country 1 specializes in and exports good 'a' and imports good 'b' (statement (b)). Statement (c) is false because implies that the cost of good 'a' relative to good 'b' is lower—not more—in country 1 than in country 2.
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RPSC Assistant Professor (College Education)