When nations trade according to their comparative advantages,
A)one nation has an absolute advantage in producing all goods
B)all opportunity costs of production are the same
C)world economic efficiency falls
D)at least one country is made better off through trade
E)at least one country is made worse off through trade

Question

Quizplus · Accepted Answer

Comparative advantage theory suggests that trade can result in mutual benefit when countries specialize in producing and exporting goods and services in which they have a comparative advantage (i.e. the opportunity cost of producing the goods or services is lower). This means that at least one country can benefit from trade as it can obtain goods or services at a lower opportunity cost. Therefore, option D is the correct choice. Options A, B, and C are incorrect as none of them describe the concept of comparative advantage.

When Nations Trade According to Their Comparative Advantages