Question

The nation of Pineland forbids international trade. In Pineland, you can buy 1 pound of fish for 2 pounds of pineapples. In other countries, you can buy 1 pound of fish for 1.5 pounds of pineapples. These facts indicate that a. Pineland has a comparative advantage, relative to other countries, in producing fish. b. other countries have a comparative advantage, relative to Pineland, in producing pineapples. c. the price of pineapples in Pineland exceeds the world price of pineapples. d. if Pineland were to allow trade, it would import fish.

Answer 1

Option (d) is correct.

Step-by-step explanation:

In Pineland,

Opportunity cost of buying 1 pound of fish = 2 pounds of pineapples

Opportunity cost of buying 1 pound of pineapple = 1/2

= 0.5 pounds of fish

In other countries,

Opportunity cost of buying 1 pound of fish = 1.5 pounds of pineapples

Opportunity cost of buying 1 pound of pineapple = 1/1.5

= 0.67 pounds of fish

This would indicate that the other countries have a comparative advantage in producing fish because they have the lower opportunity cost of producing fish than the Pineland.

Therefore, if the trade is allowed then the Pineland would import fish from the other countries.