Question

In: Economics

Country A can produce every good more efficiently​ (i.e., at lower​ cost) than country B.​ Therefore,...

Country A can produce every good more efficiently​ (i.e., at lower​ cost) than country B.​ Therefore,

A. Country A should not trade with country B for any goods.

B. Country B should lower its production costs so that it has some goods that it can trade to country A.

C. Country A should trade with country​ B, but only for those goods for which country B has an absolute advantage.

D. Country A should trade with country​ B, but only for those goods for which country B has a comparative advantage.

Solutions

Expert Solution

Answer.(D).Country A should trade with country B ,but only for those goods for which country B has a comparative advantage.

Country A can produce every good more efficiently than country B.But it does not mean that country A will specialize in all the products and will have nothing to export.If country A can produce those goods at a relatively lesser cost than some other goods, it will decide to specialize in the production of those goods and export to country B.Country B will produce those commodities which it can produce at lesser cost and will export to country A.

International trade is governed by comparative cost advantage than Absolute Advantage..A country will specialize in that production in which it has greater advantage in cost and imports the other commodity in which it has relative cost disadvantage.

Thus country A will trade with country B but only for those goods for which country B has a comparative advantage.

Rahul Sunny answered 1 year ago
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