According to the theory of trade, if two countries trade with each other:
A) consumption in one country will fall and wages 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 the 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 thus wages in both countries. This occurs because each country specializes in producing the goods for which they have a comparative advantage, resulting in increased efficiency and overall economic growth. Therefore, option C is the correct answer. Options A and D are incorrect as they suggest that trade negatively impacts one or both countries involved, which is not necessarily true. Option B is partially correct, but it does not encompass the full benefits of trade such as increased labor productivity and wages.

According to the Theory of Trade, If Two Countries Trade