If two countries have identical opportunity costs, then:
A)one country must be more productive in producing all goods than the other
B)the benefits resulting from trade are increased
C)there are no gains from specialisation and trade
D)each country should specialise in the production of a particular commodity

Question

Quizplus · Accepted Answer

Identical opportunity costs mean that the resources required to produce a unit of one good are the same as the resources required to produce a unit of another good. This implies that there is no comparative advantage, and hence no gains from trade and specialisation. Option A is incorrect as it assumes that there must be a difference in productivity, which is not the case here. Option B is also incorrect since benefits from trade depend on comparative advantage, which is absent in this case. Option D is not feasible because without relative advantage, each country would produce both goods at the same cost, making it wasteful to specialise in one at the expense of the other.

If Two Countries Have Identical Opportunity Costs, Then