Use the production possibilities data below for Austria and Italy to answer the following question(s).
Table 2-1

-Refer to Table 2-1. According to the law of comparative advantage, both Austria and Italy could gain if
A) Austria produced all of the food and clothing and Italy did not produce anything.
B) Austria specialized in producing clothing, Italy specialized in producing food, and they traded.
C) Austria specialized in producing food, Italy specialized in producing clothing, and they traded.
D) Italy and Austria were both were self-sufficient and did not trade.

Question

Use the production possibilities data below for Austria and Italy to answer the following question(s).
Table 2-1
 
-Refer to Table 2-1. According to the law of comparative advantage, both Austria and Italy could gain if
A) Austria produced all of the food and clothing and Italy did not produce anything. 
B) Austria specialized in producing clothing, Italy specialized in producing food, and they traded. 
C) Austria specialized in producing food, Italy specialized in producing clothing, and they traded. 
D) Italy and Austria were both were self-sufficient and did not trade.

Quizplus · Accepted Answer

According to the law of comparative advantage, countries should specialize in producing goods for which they have a lower opportunity cost and trade with others. If Austria specializes in food and Italy in clothing, both can benefit from trade.

Use the Production Possibilities Data Below for Austria and Italy