Question

If a wealthy nation such as the United States trades with a poorer, less developed nation like Cambodia, then it is likely True that:

A) Cambodia has an Absolute Advantage in all goods.
B) The United States has a Comparative Advantage in all goods.
C) Both countries can benefit from trade.
D) Trade is not beneficial for either country.

Answer 1

Even when a country has an absolute advantage in all products, trade can still benefit both sides by specializing in comparative advantage.

Step-by-step explanation:

Even when one country has an absolute advantage in all products, trade can still benefit both sides. This is because gains from trade come from specializing in one's comparative advantage. For example, if the United States has an absolute advantage in producing both refrigerators and shoes, it would still make economic sense for it to specialize in the good for which it has a comparative advantage. The United States would export refrigerators and import shoes, resulting in benefits for both countries.