Suppose the United States is more productive than China at making both T-shirts and cell phones. The theory of comparative advantage suggests that consumption in both countries will:
A) increase if the United States produces both goods.
B) increase if each country specializes in producing the good with a lower opportunity cost.
C) not change if China produces either T-shirts or cell phones.
D) remain unchanged.

Question

Quizplus · Accepted Answer

According to the theory of comparative advantage, each country should specialize in producing the good with a lower opportunity cost. In this scenario, if the United States is more productive in both T-shirts and cell phones, it still has a comparative advantage in one of the goods. Therefore, it should specialize in producing the good with a lower opportunity cost and trade with China, which should specialize in producing the other good. This will lead to an increase in consumption in both countries as they will trade with each other and increase their efficiency in production.

Suppose the United States Is More Productive Than China at Making