Final answer:
Resources are allocated efficiently when production and trade follow the law of comparative advantage, leading to mutual gains.
Step-by-step explanation:
The statement means that resources are allocated most efficiently when countries and the world engage in production and trade based on the law of comparative advantage. This law suggests that countries should specialize in producing goods or services that they can produce at a lower opportunity cost compared to other countries. By doing so, countries can maximize their overall production and trade, leading to more efficient resource allocation globally.
For example, let's say Country A can produce both wheat and corn, but it can produce wheat with fewer resources than corn. On the other hand, Country B can produce corn with fewer resources than wheat. According to the law of comparative advantage, Country A should specialize in producing wheat, while Country B should specialize in producing corn. They can then trade their surplus goods, resulting in both countries benefiting from the trade.
In this way, resources are utilized more efficiently because each country focuses on producing the goods they are relatively more efficient in producing, creating a win-win situation for trade and resource allocation.