Question

QUESTION 16

World output will be maximized if each country: a. attempts to be self-sufficient. b. specializes in producing those goods in which it has a comparative advantage. c. specializes in producing those goods in which it has an absolute advantage. d. reduces its consumption possibilities. e. equals its consumption possibilities.

Answer 1

The opportunity costs can be defined as the lost units of output of other goods for producing an additional unit of output of a good.

A country has comparative advantage in the production of that good in which it has lower opportunity cost.

Since absolute advantage can be defined as the ability of a party to produce a greater quantity of a goods or services compare to its rivals by using the same amount of resources.

So accoding to the comparative advantage theory of ricardo, if each country produces those goods in which they have comparative advantage, then total goods production will be greater than if each country does not follow the comparative advantage theory. So if they follow the comparative advantage theory, each country can consume outside the PPF.

Hence it can be said that World output will be maximized if each country specializes in producing those goods in which it has a comparative advantage.

Hence option b is the correct answer.