Question

Read the list and answer the question.

• What can our country produce most efficiently?
• What does our country have that other countries do not?What do the questions in the list have in common?
A. They are important questions for a country to ask when setting exchange rates.
B. They are important questions for a country to ask when determining wage levels.

C. They are important questions for a country to ask when determining what to specialize in.

D. They are important questions for a country to ask when creating environmental regulations.

Answer 1

Step-by-step explanation:

Even a country that is more efficient (has absolute advantage) in everything it makes would benefit from trade. Consider an example:

Country A: One hour of labor can produce either three kilograms of steel or two shirts. Country B: One hour of labor can produce either one kilogram of steel or one shirt.

Country A is more efficient in both products. Now suppose Country B offers to sell Country A two shirts in exchange for 2.5 kilograms of steel.

To produce these additional two shirts, Country B diverts two hours of work from producing (two kilograms) steel. Country A diverts one hour of work from producing (two) shirts. It uses that hour of work to instead produce three additional kilograms of steel.

Overall, the same number of shirts is produced: Country A produces two fewer shirts, but Country B produces two additional shirts. However, more steel is now produced than before: Country A produces three additional kilograms of steel, while Country B reduces its steel output by two kilograms. The extra kilogram of steel is a measure of the gains from trade.