Relative production costs can determine whether trade should take place, but they do not determine what items to export or import.

Question

Quizplus · Accepted Answer

Relative production costs not only determine whether trade should take place but also influence what items a country exports or imports. Countries tend to export goods for which they have a comparative advantage (lower relative production costs) and import goods for which they have a comparative disadvantage (higher relative production costs).

Relative Production Costs Can Determine Whether Trade Should Take Place