Suppose that the opportunity cost of producing goods differs between two nations. We can correctly state that
A) the two nations should not specialize in the production of goods.
B) specialization can lead to a decrease in the production of all goods.
C) specialization can lead to an increase in the production of all goods.
D) neither country has a comparative advantage in the production of any good.

Question

Quizplus · Accepted Answer

When the opportunity cost of producing goods differs between two nations, it is possible for each nation to have a comparative advantage in the production of some goods. This means that each nation can specialize in producing the goods in which it has a comparative advantage and trade with the other nation for goods in which it does not have a comparative advantage. Specialization and trade can lead to an increase in the production of all goods, as each nation is able to focus on producing the goods in which it is most efficient.

Suppose That the Opportunity Cost of Producing Goods Differs Between