Suppose the United States is more productive than China at producing 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 produces the good for which it has the lowest opportunity cost.
C) not change if China produces either T-shirts or cell phones.
D) remain the same since nothing can be done to increase production in the two countries.

Question

Quizplus · Accepted Answer

According to the theory of comparative advantage, each country should specialize in producing the good for which it has the lowest opportunity cost, and then trade with the other country. This would result in both countries increasing consumption of both goods, as they are now able to trade and obtain the other good at a lower cost than they could produce it themselves. Therefore, if each country produces the good for which it has the lowest opportunity cost, consumption in both countries will increase.

Suppose the United States Is More Productive Than China at Producing