When two countries with different opportunity costs engage in trade based on comparative advantage, the result is: A. Both countries experiencing increased production and consumption B. Both countries producing only goods they have an absolute advantage in C. Both countries experiencing decreased production D. Both countries producing the same goods
Question
When two countries with different opportunity costs engage in trade based on comparative advantage, the result is: A. Both countries experiencing increased production and consumption B. Both countries producing only goods they have an absolute advantage in C. Both countries experiencing decreased production D. Both countries producing the same goods
Solution
The answer is A. Both countries experiencing increased production and consumption.
Here's why:
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Comparative advantage is a concept in economics that refers to a country's ability to produce a particular good or service at a lower opportunity cost than its trading partners.
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When two countries with different opportunity costs engage in trade based on comparative advantage, they each specialize in producing the goods they have a comparative advantage in.
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This specialization allows for more efficient use of resources, leading to increased production.
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The goods produced are then traded between the two countries, which allows both countries to consume more than they could if they were only relying on their own production.
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Therefore, the result of two countries with different opportunity costs engaging in trade based on comparative advantage is both countries experiencing increased production and consumption.
Similar Questions
The theory of comparative advantage demonstrates that even if a country is less efficient than another in producing all goods, it can still benefit from trade by specializing in the production of the good in which it has: A. The highest absolute advantage B. The lowest opportunity cost C. The highest total production D. The lowest absolute cost
How do countries develop a comparative advantage over their trading partners?A.By producing more essential goods than other countriesB.By having lower opportunity costs for producing certain goodsC.By lowering the trade deficits they have with their neighborsD.By reducing their reliance on foreign trade for essential goods
Which of the following conditions signify Comparative Advantage?a.When a country can produce goods at low cost.b.When a country can produce goods at low taxes.c.When a country can produce goods at low opportunity cost.d.When a country can transport goods at low cost.
The theory of comparative advantage suggests that countries should specialize in producing goods or services in which they have:Question 45Answera.Lower opportunity costsb.Higher opportunity costsc.Equal opportunity costsd.No opportunity costs
What kind of advantage comes from a country producing a good at a lower opportunity cost than another country is able to do?Multiple choice question.AbsoluteRelativeComparativeOpportunity
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