Under the banner of comparative advantage, the free trade of specialized goods will result in:
A)a reduction in overall economic efficiency.
B)a reduction in the real wage level in one of the two countries.
C)an increase in the real wage levels in both of the countries.
D)an increase in the real wage level in only one of the two countries.
E)an increase in the absolute efficiency of only one of the two nations.

Question

Quizplus · Accepted Answer

According to the theory of comparative advantage, each country should specialize in producing the goods in which it has a lower opportunity cost than another country. As a result, both countries can benefit from trading with each other. By focusing on the production of goods in which they have comparative advantage, each country can increase its efficiency and productivity. This, in turn, leads to an increase in the real wage levels of both countries. Thus, the free trade of specialized goods results in an increase in the real wage levels in both of the countries.

Under the Banner of Comparative Advantage, the Free Trade of Specialized