Question

Suppose two countries, A and B, each produce two goods, X and Y If country B is better at producing both goods, will country A still be better off by specializing and trading?

O Yes, even if one country has an absolute disadvantage in the production of all goods, it will still have a comparative advantage in the production of some goods and should specialize in the production of those goods
O Yes, a country should always specialize in the production of a good in which it has a higher opportunity cost than another country.
O No, specialization and trade is not an economic concept that can be applied to international trade theory.
O No, if a country has an absolute advantage in the production of all goods, it cannot be better off by specializing

Answer 1

Country A can still benefit from trade by specializing in the production of goods for which it has a comparative advantage, leading to mutually beneficial exchange with country B. Yes, even if one country has an absolute disadvantage in the production of all goods, it can still be better off by specializing and trading.

Step-by-step explanation:

This is because gains from trade arise from each country specializing in the production of goods for which it has a comparative advantage. Comparative advantage occurs when a country can produce a good at a lower opportunity cost than another country, even if it does not have the absolute advantage. Therefore, country A should identify the good that it can produce at the lowest relative cost compared to country B and specialize in that good. By doing so, both countries can benefit from trade despite one having an absolute advantage in all goods.