If a country exports the good that it can produce at a low opportunity cost and imports those goods that it would otherwise produce at a high opportunity cost, we say that such trade is based on:
A)the theory of absolute advantage.
B)the arbitrage pricing theory.
C)theory of factor endowments.
D)the theory of comparative advantage.

Question

Quizplus · Accepted Answer

The given scenario describes the theory of comparative advantage, where a country specializes in producing and exporting the goods in which it has a lower opportunity cost compared to other countries, and imports the goods in which it has a higher opportunity cost. This theory explains how trade can be mutually beneficial for countries, even if one country can produce all goods more efficiently than another country.

If a Country Exports the Good That It Can Produce