Tom and Don have different opportunity costs of producing two goods. If Tom and Don specialize in producing the goods in which each has a comparative advantage and they exchange goods, then
A)they each lose because they are no longer able to produce and consume both goods.
B)one of them will gain and one of them will lose.
C)each will gain because each can consume a combination of goods that is outside his production possibility frontier.
D)each will produce a combination of goods that is outside his production possibilities frontier.
E)each will produce a combination of goods that is inside his production possibilities frontier.

Question

Quizplus · Accepted Answer

By specializing in producing the goods in which each has a comparative advantage and exchanging goods, both Tom and Don can consume a combination of goods that is outside their production possibility frontier. This is because they can each obtain the goods that they are not as efficient at producing through exchange, leading to a more efficient allocation of resources and an increase in overall consumption. Thus, each will gain from trade.

Tom and Don Have Different Opportunity Costs of Producing Two