Given the data in the graph below, which nation should specialize in steel production and which nation in wheat production? Why?
The opportunity cost for 1 unit of wheat is 1 unit of steel in nation Y. The opportunity cost of 1 unit of wheat is 1/2 unit of steel in nation X. Nation X is the lower cost producer of wheat.
Nation Y should specialize in the production of steel where it has a comparative cost advantage. For nation Y, 1 steel = 1 wheat. For nation X 1 steel = 2 wheat.
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