The United States produces both automobiles and computers more efficiently than Mexico.Nevertheless, it is possible that both nations would benefit from trade in these items.The reason for this is
A)the law of comparative advantage.
B)the inflation-unemployment trade-off.
C)externalities.
D)the cost disease of personal services.
E)attempts to repeal the law of supply and demand.

Question

Quizplus · Accepted Answer

The law of comparative advantage states that countries should specialize in producing goods in which they have a lower opportunity cost, and trade with other countries to obtain goods in which they have a higher opportunity cost. In this case, even though the United States is more efficient at producing both automobiles and computers, there may still be an opportunity for Mexico to specialize in producing one of these goods at a lower opportunity cost, thereby allowing both countries to benefit from trade.

The United States Produces Both Automobiles and Computers More Efficiently