Refer to the figure shown,which represents the production possibilities frontiers for Countries A and B.After examining each country's production possibilities curve,it is clear that:
A)neither country will benefit from trade.
B)both countries can benefit from trade because absolute advantage exists.
C)both countries could benefit from trade because comparative advantage exists.
D)only Country A will benefit from trade.

Question

Refer to the figure shown,which represents the production possibilities frontiers for Countries A and B.After examining each country's production possibilities curve,it is clear that:
A)neither country will benefit from trade. 
B)both countries can benefit from trade because absolute advantage exists. 
C)both countries could benefit from trade because comparative advantage exists. 
D)only Country A will benefit from trade.

Quizplus · Accepted Answer

Both countries have different opportunity costs for producing each good, indicating comparative advantage. Country A has a comparative advantage in producing robots, while Country B has a comparative advantage in producing widgets. Therefore, if they specialize in producing the good they have a comparative advantage in and trade with each other, both countries can benefit from trade by increasing their consumption of both goods beyond what their Production Possibility Frontiers allow.

Refer to the Figure Shown,which Represents the Production Possibilities Frontiers