Consider the United States' production of soy beans and running shoes.If the United States has an absolute advantage in the production of both goods compared to China,
A) both countries can gain from trade.
B) only the United States can gain from trade.
C) only China can gain from trade.
D) each country will be able to produce at a point beyond its PPF.
E) only the United States will be able to operate beyond its PPF.

Question

Quizplus · Accepted Answer

Even though the United States has an absolute advantage in both goods, it can still benefit from trade by specializing in the production of the good in which it has a comparative advantage (if it exists). By doing so, the United States can produce more efficiently and cost-effectively than China in that particular good. In turn, China can specialize in the production of the good in which it has a comparative advantage (if it exists). As a result, both countries can increase their overall output and trade with each other, which leads to benefits for both nations.

Consider the United States' Production of Soy Beans and Running