Question

If a country specializes in goods that it can produce most readily and cheaply and trades those goods for the goods that another country can produce most readily and cheaply, then both countries are exercising which of the following principles?

A) distinctive advantage
B) comparative advantage
C) absolute advantage
D) parallel competencies

Answer 1

The principle that a country is exercising by specializing in the production of goods it can produce most readily and cheaply and trading those goods with another country is known as comparative advantage.

Step-by-step explanation:

If a country specializes in goods that it can produce most readily and cheaply and trades those goods for the goods that another country can produce most readily and cheaply, they are exercising the principle of comparative advantage. A country has an absolute advantage when it can produce a product using fewer resources compared to other countries. However, even if a country has an absolute advantage in all goods, it can benefit more from trade by focusing on goods for which it has a comparative advantage, meaning the goods it can produce at a lower opportunity cost in terms of other goods. This principle suggests that countries should specialize in producing goods where they give up the least to produce, leading to increased global production and higher levels of consumption for all when they trade with each other. The correct answer to the question is B) comparative advantage.