Question

Two countries produce milk and dairy products efficiently. Neither has an absolute advantage. However, Country A exports milk to Country B, and Country A imports cotton from Country B. Which of the following is inferred?

Answer 1

The opportunity cost of producing milk is lower for Country A.

Answer 2

The correct answer is this one: "The opportunity cost of producing milk is lower for Country A." Two countries produce milk and dairy products efficiently. Neither has an absolute advantage.

Here are the choices.

The opportunity cost of producing milk is lower for Country A.
The opportunity cost of producing cotton is higher for Country B.
Country A has a natural resource advantage in cotton.
Country B has a natural resource advantage in milk.