Two countries will choose to specialize and trade only if:
A)the terms of trade fall between their opportunity costs for producing the goods on their own.
B)the opportunity costs are the same between the two nations.
C)the opportunity costs are astronomically high for producing the goods on their own.
D)one country possesses the absolute advantage in both goods,but the comparative advantage in only one good.

Question

Quizplus · Accepted Answer

Specialization and trade are based on comparative advantage, which means each country focuses on producing the good they have a lower opportunity cost for. Therefore, they will only choose to specialize and trade if the terms of trade fall between their opportunity costs for producing the goods on their own, ensuring that both countries benefit from trade. Choice B is not relevant because countries can still specialize and trade even if their opportunity costs differ. Choice C is not accurate because having astronomically high opportunity costs for producing the goods does not necessarily mean that trade would be beneficial. Finally, choice D is not correct because if one country has an absolute advantage in both goods, it would not make sense to specialize and trade as there would be no room for the other country to have a comparative advantage.

Two Countries Will Choose to Specialize and Trade Only If