According to the theory of trade, if two countries trade with each other:
A) consumption in one country will fall and wages in that country will also fall.
B) wage costs will remain low if both countries specialize in producing the goods for which they have a comparative advantage.
C) trade raises labor productivity and wages of both countries.
D) wages in the country with a comparative advantage will rise and wages in the country without a comparative advantage will fall.

Question

Quizplus · Accepted Answer

According to the theory of trade, trade raises labor productivity and wages of both countries. This is because each country can specialize in producing the goods for which it has a comparative advantage, leading to an overall increase in production and consumption. This increased specialization and efficiency leads to higher wages for the workers in both countries. Therefore, option C is the correct answer. Options A and D are incorrect because they suggest that one country will suffer a decrease in consumption or wages, which is not necessarily the case with trade. Option B is partially correct as it relates to the idea of comparative advantage, but it does not fully address the broader impact of trade on productivity and wages.

According to the Theory of Trade, If Two Countries Trade