Suppose Country A can produce 10 tons of wheat or 5 tons of corn per year, and Country B can produce 8 tons of wheat or 8 tons of corn per year. Based on their production possibilities, which country has the comparative advantage in the production of wheat?

• A. Country A
• B. Both countries have the same comparative advantage
• C. Country B
• D. Neither country has a comparative advantage in wheat

Answer: (A)

Verified step by step guidance

1. Identify the opportunity cost of producing wheat in Country A. This is calculated by determining how much corn Country A must give up to produce one ton of wheat. Use the formula: \(\text{Opportunity Cost of Wheat in A} = \frac{\text{Corn production in A}}{\text{Wheat production in A}}\).
2. Calculate the opportunity cost of producing wheat in Country B using the same method: \(\text{Opportunity Cost of Wheat in B} = \frac{\text{Corn production in B}}{\text{Wheat production in B}}\).
3. Compare the opportunity costs of producing wheat between the two countries. The country with the lower opportunity cost has the comparative advantage in wheat production.
4. Interpret the results: if Country A's opportunity cost of producing wheat is less than Country B's, then Country A has the comparative advantage in wheat. Otherwise, Country B has it or both have the same comparative advantage if the costs are equal.
5. Summarize your conclusion based on the comparison of opportunity costs to determine which country should specialize in wheat production according to the principle of comparative advantage.