Identify the truthfulness of the following statements.
I. If country A has a comparative advantage over country B in the production of good X, then the opportunity cost of producing good X in country A is lower than in country B.
II. If country A has a comparative advantage over country B in the production of good X, then country A cannot gain from trade with country B.
A) Both I and II are true.
B) Both I and II are false.
C) I is true; II is false.
D) I is false; II is true.

Question

Identify the truthfulness of the following statements. 
I. If country A has a comparative advantage over country B in the production of good X, then the opportunity cost of producing good X in country A is lower than in country B.
II. If country A has a comparative advantage over country B in the production of good X, then country A cannot gain from trade with country B.
A) Both I and II are true.
B) Both I and II are false.
C) I is true; II is false.
D) I is false; II is true.

Quizplus · Accepted Answer

Statement I is true because comparative advantage means that a country can produce a good at a lower opportunity cost than another country. Statement II is false because even if a country has a comparative advantage in one good, it can still gain from trade by specializing in that good and importing other goods from the trading partner.

Identify the Truthfulness of the Following Statements