Question

Palladia specializes in the production of beef and produces beef more efficiently than any other country. It buys wheat, which it produces less efficiently than beef, from Rhodia, even though it produces wheat more efficiently than Rhodia. Which of the following theories of international trade supports Palladia's decision to buy wheat from Rhodia?

Answer 1

Comparative advantage

Step-by-step explanation

Comparative advantage is a theory that refers to the ability to produce products at a lower opportunity costs than others. This concept means that if a country is better than other producing two products, specialization still can happen as the second country can produce one of the products better and it will specialize as it has a comparative advantage and like that each country focuses on what they can produce more efficiently.