A country will be able to consume a combination of goods that is not attainable solely from domestic production if
A) the world terms of trade differ from its domestic relative costs.
B) the country specializes in one product.
C) the country avoids international trade.
D) the world terms of trade equal the domestic relative costs.
E) the country's domestic production value equals world relative value.

Question

Quizplus · Accepted Answer

When the world terms of trade differ from its domestic relative costs, a country can benefit by engaging in international trade and consuming a combination of goods that is not attainable solely from domestic production. This is because the country can export goods it has a comparative advantage in producing and import goods it has a comparative disadvantage in producing, all while benefiting from the difference in relative costs and terms of trade.

A Country Will Be Able to Consume a Combination of Goods