The country of Zeran specializes in the production of beef and produces beef more efficiently than any other country. It buys soybeans, which it produces less efficiently than beef, from Canta, even though it produces soybeans more efficiently than Canta. Which theory of international trade supports Zeran's decision to buy wheat from Canta?
A) Samuelson critique
B) mercantilism
C) Ricardo's theory of comparative advantage
D) Adam Smith's theory of absolute advantage
E) Leontief's paradox

Question

Quizplus · Accepted Answer

Ricardo's theory of comparative advantage explains that countries should specialize in producing goods for which they have a lower opportunity cost, even if they can produce other goods more efficiently than their trade partners. Zeran buys soybeans from Canta because it has a comparative advantage in beef production.

The Country of Zeran Specializes in the Production of Beef