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Which of the following statements is true?

A. Specialization will be complete among nations when opportunity costs increase as the nations produce more of a particular product.
B. Specialization will be less than complete among nations when opportunity costs increase as the nations produce more of a particular product.
C. Comparative advantage means that total world output will be greatest when each good is produced by the nation that has the highest domestic opportunity cost of producing it.
D. Comparative advantage means that a nation can gain from trade only if it has a lower labor productivity than its trading partner.

User Sheikia
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Final answer:

The correct statement is that specialization among nations will be less complete when opportunity costs increase with the production of more of a particular product. Specialization is advantageous when nations produce goods for which they have a lower opportunity cost, maximizing global production and consumption benefits.

Step-by-step explanation:

The true statement among the given options is: Specialization will be less than complete among nations when opportunity costs increase as the nations produce more of a particular product.

Specialization and trade are based on the principle of comparative advantage. This economic principle states that when each country specializes in producing goods for which it has a lower opportunity cost, global production and consumption can increase, leading to benefits for all trading partners. Therefore, when opportunity costs increase with the production of more of a good, it signals that a country is moving away from its area of comparative advantage, and specialization will not be complete. This is because the benefits of specialization decrease as the opportunity costs rise, making it less advantageous for a country to continue increasing production of that good.

The concept of comparative advantage also implies that a nation can benefit from trade even if it has a higher labor productivity than its trading partners, as long as they trade based on their respective comparative advantages. Therefore, options C and D are not true. Gains from trade do not depend on having a lower labor productivity; they depend on each nation concentrating on the goods that they can produce more efficiently compared to others.

User Pagetribe
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