Given the information in the table above, if the Home economy suffered a meltdown, and theUnit Labor Requirements doubled to 20 for cloth and 40 for widgets then home shouldA) export widgets and import cloth.B) export cloth.C) export widgets.D) export both and import nothing.E) export and import nothing.6. Trade between two countries can benefit both countries ifA) each country enjoys superior terms of trade.B) each country has a more elastic demand for the imported goods.C) each country has a more elastic supply for the exported goods.D) each country produces a wide range of goods for export.E) each country exports that good in which it has a comparative advantage.
Question
Given the information in the table above, if the Home economy suffered a meltdown, and theUnit Labor Requirements doubled to 20 for cloth and 40 for widgets then home shouldA) export widgets and import cloth.B) export cloth.C) export widgets.D) export both and import nothing.E) export and import nothing.6. Trade between two countries can benefit both countries ifA) each country enjoys superior terms of trade.B) each country has a more elastic demand for the imported goods.C) each country has a more elastic supply for the exported goods.D) each country produces a wide range of goods for export.E) each country exports that good in which it has a comparative advantage.
Solution
Given the information in the table above, if the Home economy suffered a meltdown and the Unit Labor Requirements doubled to 20 for cloth and 40 for widgets, we can determine the best course of action by analyzing the changes in comparative advantage.
Comparative advantage refers to a country's ability to produce a good or service at a lower opportunity cost compared to other countries. In this case, we need to compare the new Unit Labor Requirements for cloth and widgets.
Before the meltdown, the Home economy had a comparative advantage in producing cloth, as the Unit Labor Requirement for cloth was lower than for widgets. However, after the meltdown, the Unit Labor Requirement for cloth doubled to 20, while the Unit Labor Requirement for widgets also doubled to 40.
Based on this information, we can conclude that the Home economy no longer has a comparative advantage in producing cloth. The Unit Labor Requirement for widgets is now equal to the Unit Labor Requirement for cloth.
Therefore, the Home economy should focus on exporting the good in which it still has a comparative advantage. In this case, the Home economy should export widgets and import cloth.
Hence, the correct answer is A) export widgets and import cloth.
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