Nikoli lives in New Salom which specializes in component parts, while its geographical neighbor, Durma specializes in heavy machinery. New Salom exports component parts to Durma, which in turn exports heavy machinery to New Salom. According to the theory of comparative advantage, this mutually beneficial trade relationship best illustrates
A) the significance of trade barriers.
B) a positive-sum game.
C) a first-mover advantage.
D) the advantages of mercantilism.
E) a zero-sum game.

Question

Quizplus · Accepted Answer

This trade relationship illustrates a positive-sum game, where both parties benefit from trade by specializing in what they produce most efficiently, according to the theory of comparative advantage.

Nikoli Lives in New Salom Which Specializes in Component Parts