Mutually beneficial trade between two countries is possible only as long as
A)unit costs of production are the same no matter how many units are being produced
B)marginal costs rise as production increases
C)marginal costs are equal to average total costs
D)one country has an absolute advantage in the production of one good,while the other country enjoys a similar advantage in making another good
E)one country has a comparative advantage in the production of one good,while the other country enjoys a comparative advantage in making another good

Question

Quizplus · Accepted Answer

Mutually beneficial trade is based on comparative advantage, not absolute advantage (D) or unit costs (A). Marginal costs (B and C) are not a determining factor in mutually beneficial trade. Therefore, the only option left is E, where each country has a comparative advantage in the production of a different good, allowing them to specialize in what they do best and trade for the other goods they need.

Mutually Beneficial Trade Between Two Countries Is Possible Only as Long