Econostan can produce a widget at the cost of one thingamajig.Its trading partner can produce the same widget at a cost of two thingamajigs.

Question

Quizplus · Accepted Answer

According to the principle of comparative advantage, Econostan should specialize in producing goods in which it has a lower opportunity cost than its trading partner. In this case, Econostan has a lower opportunity cost of producing widgets than thingamajigs (1 vs. 2), whereas its trading partner has a lower opportunity cost of producing thingamajigs than widgets. Therefore, Econostan should specialize in producing widgets and import thingamajigs from its trading partner to maximize efficiency and trade benefits.

Econostan Can Produce a Widget at the Cost of One