Use the production possibilities data below for Austria and Italy to answer the following question(s). Table 2-1
Refer to Table 2-1. According to the law of comparative advantage, both Austria and Italy could gain if
A) Austria produced all of the food and clothing and Italy did not produce anything.
B) Austria specialized in producing clothing, Italy specialized in producing food, and they traded.
C) Austria specialized in producing food, Italy specialized in producing clothing, and they traded.
D) Italy and Austria were both were self-sufficient and did not trade.

Question

Use the production possibilities data below for Austria and Italy to answer the following question(s). Table 2-1
  Refer to Table 2-1. According to the law of comparative advantage, both Austria and Italy could gain if
A) Austria produced all of the food and clothing and Italy did not produce anything. 
B) Austria specialized in producing clothing, Italy specialized in producing food, and they traded. 
C) Austria specialized in producing food, Italy specialized in producing clothing, and they traded. 
D) Italy and Austria were both were self-sufficient and did not trade.

Quizplus · Accepted Answer

According to the law of comparative advantage, each country should specialize in producing the good in which it has the lowest opportunity cost and then trade with each other. In this case, Austria has a lower opportunity cost for producing food, and Italy has a lower opportunity cost for producing clothing. Therefore, if they specialize in these goods and trade, both countries can achieve a higher level of consumption than if they tried to produce both goods on their own. Choice C is the best option as it corresponds with the law of comparative advantage.

Use the Production Possibilities Data Below for Austria and Italy