CFA CFA Level 1 Problem with a question from Q-Bank

Problem with a question from Q-Bank

  • This topic has 2 replies, 2 voices, and was last updated Jul-17 by Chevalier.
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  • Chevalier
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    Question ID#: 89110

    The table below outlines the possible tradeoffs of producing units of cloth and corn for both Country A and Country B.

    Country A cloth / corn

    1: 0 // 4
    2: 6 // 3
    3: 14 // 0

    Country B cloth / corn

    1: 0 // 8
    2: 8 // 6
    3: 18 // 0

    Which scenario best describes the effects of trade between the countries?

    A) Both countries would gain if Country A traded corn for Country B’s cloth.
    B) Both countries would gain if Country A traded cloth for Country B’s corn.
    C) Country B would not gain from trade, because it has an absolute advantage in the production of both goods.

    The given answer is (B), which would usually be the no-brainer. But, in case both countries select the second given production scenario, there will actually be a production that exceeds the production in the trade scenario. So I took answer (C). What do you guys think on that?

    Sophie Macon
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    Question ID#: 89110

    But, in case both countries select the second given production scenario, there will actually be a production that exceeds the production in the trade scenario. So I took answer (C).


    @Chevalier
    – what do you mean by the sentence above?

    Chevalier
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    oh wow… now I see it… sorry for bothering…

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