Two countries with differing comparative advantages may engage in trade because
A)They will be able to consume more goods in total due to specialization and trade.
B)They will achieve an absolute advantage with one another.
C)They will be able to produce and consume goods on their production possibilities curves.
D)They are required to because they are part of the World Trade Organization.

Question

Quizplus · Accepted Answer

Countries with differing comparative advantages can benefit from trade because each country can specialize in producing the good or service for which it has a lower opportunity cost, and then trade with the other country to obtain the good or service for which it has a higher opportunity cost. This allows both countries to consume more goods overall, which is known as the theory of gains from trade.

Two Countries with Differing Comparative Advantages May Engage in Trade