Refer to diagram Figure A As a result of specialization and

Refer to diagram \'Figure A\'

As a result of specialization and trade, Country A’s consumption possibilities curve shifts from AA to AB; so we conclude that Country A

A) has a comparative advantage in shoes and a comparative disadvantage in televisions.

B) has a comparative advantage in television and should specialize in the production of shoes.

C) has a comparative disadvantage in shoes and could increase welfare by specializing in the production of televisions.

D) should produce 60 televisions and 40 shoes.

E) none of the above.

Solution

B) has a comparative advantage in television and should specialize in the production of shoes.

Trade has led to increase in consumption of shoes which means shoes are being imported. This implies that A has comparative advantage in Television.