Trade between two countries can benefit both countries if

A) each country exports that good in which it has a comparative advantage. B) each country enjoys superior terms of trade. C) each country has a more elastic demand for the imported goods. D) each country has a more elastic supply for the exported goods. E) each country produces a wide range of goods for export.

Question

Business

Chevy

15 February, 05:43

Trade between two countries can benefit both countries if

A) each country exports that good in which it has a comparative advantage. B) each country enjoys superior terms of trade. C) each country has a more elastic demand for the imported goods. D) each country has a more elastic supply for the exported goods. E) each country produces a wide range of goods for export.

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Answers (1)

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Luca · Answer 1

Option (A) is correct.

Explanation:

According to the law of comparative advantage, a country or a nation has a comparative advantage in the production of a particular commodity if the opportunity cost of producing that commodity is lower than the other nation in terms of other commodity.

Comparative advantage is because of the difference in the factor endowments among the nations.

A country is exporting a commodity whose production requires the intensive use of the relatively abundant factor and in which it has a comparative advantage.