Suppose that labor is the only productive resource needed.Scotland has a comparative advantage in producing firewood,while Iceland has a comparative advantage in producing wool.If the two nations trade with each other,

A) Scotland should export wool and Iceland should export firewood.
B) Scotland should export both wool and firewood.
C) Scotland should export firewood and Iceland should export wool.
D) Iceland should export both wool and firewood.

According to the principle of comparative advantage, countries should specialize in producing and exporting goods that they can produce at a lower opportunity cost, which means giving up less of one good to produce more of another. In this scenario, Scotland has a lower opportunity cost of producing firewood compared to wool, while Iceland has a lower opportunity cost of producing wool compared to firewood. Therefore, Scotland should export firewood and Iceland should export wool, resulting in mutual gain from trade. Option C correctly identifies this concept. Option A and D are incorrect because they suggest the opposite export arrangement for each country, which would not be in line with their comparative advantages. Option B is incorrect because it suggests that Scotland should export both goods, which would not make sense if it has a lower opportunity cost in firewood production.