Suppose there are only two goods in the world, corn and shirts. If it is true that with its vast resources the United States could produce both more corn and more shirts than Mexico,
A) Mexico will never have a comparative advantage and, thus, can never gain from trading with the United States.
B) trade between the United States and Mexico will make the United States better off but will leave Mexico worse off unless the wage of workers in Mexico rises to equal that of American workers.
C) total production of corn and shirts cannot be increased through specialization and trade.
D) both countries will be able to gain from specialization and trade as long as relative costs of producing the two goods are different in Mexico than in the United States.

Question

Quizplus · Accepted Answer

Both countries can gain from trade if they specialize in producing the goods for which they have a comparative advantage, which occurs when relative production costs differ.

Suppose There Are Only Two Goods in the World, Corn