Which of the following statements is true?

Question

Quizplus · Accepted Answer

Comparative advantage is the ability of a country to produce goods and services at lower opportunity costs than another country. This means that a country can produce a certain good at a lower cost, in terms of forgone opportunities, than another country. It is this lower opportunity cost that gives a country a comparative advantage in producing that good, and allows it to trade with other countries for goods in which they have a comparative disadvantage. B is incorrect because free trade theory suggests that when trade takes place, both countries can benefit from it, with each country specializing in producing the goods in which it has a comparative advantage. C and D are also incorrect because the theory of comparative advantage suggests that a nation should specialize in the production of those goods for which it has a comparative advantage, not absolute advantage.

Which of the Following Statements Is True