Final answer:
India should export cloth because it has a lower opportunity cost for producing cloth, and Thailand should export rice, where it has a lower opportunity cost, allowing both countries to benefit from trade according to their comparative advantages.
Step-by-step explanation:
Using opportunity costs, we can decide which country should export cloth and which should export rice. Opportunity cost is the next best alternative foregone when making a choice.
To find the opportunity cost of producing rice and cloth in India and Thailand, we compare outputs produced in an hour. India produces 10 kg of rice and 5 meters of cloth, while Thailand produces 5 kg of rice and 2 meters of cloth.
In India, the opportunity cost of 1 kg of rice is 0.5 meters of cloth (5 meters / 10 kg), and the opportunity cost of 1 meter of cloth is 2 kg of rice (10 kg / 5 meters). In Thailand, the opportunity cost of 1 kg of rice is 0.4 meters of cloth (2 meters / 5 kg), and the opportunity cost of 1 meter of cloth is 2.5 kg of rice (5 kg / 2 meters). Comparing these, India has a lower opportunity cost for producing cloth and Thailand for producing rice.
Therefore, India should export cloth where it has a comparative advantage and Thailand should export rice, benefiting both countries through trade based on their comparative advantages.