If two nations specialize according to their respective comparative advantage, and then trade with
each other, both nations can consume output-combinations that are beyond their production
possibilities curves.

Question

Quizplus · Accepted Answer

This is the basic principle of international trade according to the theory of comparative advantage. Specialization and trade allow both countries to increase their overall consumption by producing and exporting goods in which they have a comparative advantage and importing goods in which they have a comparative disadvantage. This results in a more efficient allocation of resources and a higher overall level of output.

If Two Nations Specialize According to Their Respective Comparative Advantage