George and Michael can gain from exchange
A) unless one has an absolute advantage in all goods.
B) unless they have different opportunity costs.
C) if each specializes in the production of the good for which he has the lower opportunity cost.
D) if each specializes in the production of the good for which he has the higher opportunity cost.

Question

Quizplus · Accepted Answer

The principle of comparative advantage states that two individuals or countries can both gain from trade if they specialize in producing the good in which they have a lower opportunity cost. By specializing in the production of the good with the lower opportunity cost, they can increase their overall output and trade with each other to obtain the other good at a lower opportunity cost than producing it themselves. Therefore, option C is the correct choice as it states that each should specialize in the good for which they have the lower opportunity cost.

George and Michael Can Gain from Exchange