If Tom and Di specialize in producing the goods in which he and she have a comparative advantage and they exchange goods, then_________ .
A) they will lose because they are no longer able to produce and consume both goods.
B) each will gain because each can consume a combination of goods that is outside her/his production possibility frontier
C) one of them will gain and the other will lose
D) each will produce a combination of goods that is within her/his production possibility frontier

Question

Quizplus · Accepted Answer

When Tom and Di specialize in producing the goods in which they have comparative advantage and exchange goods, they both can consume a combination of goods that is outside of their respective production possibility frontier. This is because when they specialize, they become more efficient at producing the good they have a comparative advantage in, thereby increasing the total amount of goods produced. By exchanging their goods, they can consume a combination of goods that is outside of what they individually could produce. This results in each of them gaining from trade.

If Tom and Di Specialize in Producing the Goods in Which