Gains from free trade are realized when countries specialize in the production of goods:
A)for which they have a comparative advantage.
B)which they can produce for low costs.
C)for which they have an international reputation for excellence.
D)which they can produce for a profit.

Question

Quizplus · Accepted Answer

Comparative advantage refers to a country's ability to produce a good at a lower opportunity cost than another country. When countries specialize in producing goods for which they have a comparative advantage and engage in free trade, they can produce more efficiently and increase total output, leading to gains in productivity and economic welfare. Gains from free trade are realized when countries specialize in the production of goods for which they have a comparative advantage. This means that they can produce a good at a lower opportunity cost than another country. By specializing in producing this good and trading with other countries, both countries can benefit and achieve a higher overall level of economic welfare.

Gains from Free Trade Are Realized When Countries Specialize in the Production