If two countries with increasing opportunity costs have identical PPFs but different tastes,
A) the countries will have identical relative commodity prices under autarky, and therefore there is no incentive to trade.
B) the countries will have different relative commodity prices under autarky, but there will still be no incentive for them to trade.
C) the countries will have different relative commodity prices under autarky, and each country can gain by exporting the good for which its consumers have the higher relative preference.
D) the countries will have different relative commodity prices under autarky, and each country can gain by exporting the good for which its consumers have the lower relative preference.

Question

Quizplus · Accepted Answer

Different tastes affect the domestic relative prices of goods under autarky, leading each country to specialize in the production of goods for which there is lower domestic relative preference. This specialization allows for trade that benefits both countries by enabling them to consume a mix of goods that would not be possible without trade.

If Two Countries with Increasing Opportunity Costs Have Identical PPFs