Two countries with differing comparative advantages may engage in trade because

Question

Quizplus · Accepted Answer

By specializing in producing goods they are relatively better at producing and trading with each other, both countries will be able to consume more goods in total compared to if they tried to produce everything themselves. This is the fundamental principle of comparative advantage. Option B is incorrect because achieving an absolute advantage over each other is not necessary or relevant to the decision to trade. Option C is incorrect because it assumes that both countries have identical production possibilities curves, which is unlikely.

Two Countries with Differing Comparative Advantages May Engage in Trade