Final answer:
International trade leverages comparative and absolute advantage principles, where countries specialize in products they can produce more efficiently. This specialization leads to increased economic efficiency and mutual benefits from trade.
Step-by-step explanation:
The student's question is centered around the concept of international trade, where countries like Parma and Zan specialize in the production of different goods such as cheese, wheat, cardboard, and agricultural parts. When engaging in free trade, nations often focus on the manufacturing of products for which they have a comparative advantage or an absolute advantage.
The comparative advantage theory, initially formulated by Adam Smith, posits that countries should concentrate on producing goods they can make at a lower opportunity cost than others, leading to increased economic efficiency and beneficial trade.
The concept of the production possibilities frontier (PPF) illustrates the potential output for a country given its resources. For example, assuming one worker in each with a fixed number of work-hours per week, the PPF shows the trade-offs and opportunity costs involved in deciding between producing two different goods. One can determine which country has an absolute advantage in producing a good by comparing how much of each good a country can produce with the same amount of resources.
To highlight this, consider the example of Mexico and the United States before and after specializing according to their comparative advantages. Before specialization, each country produced a combination of shoes and refrigerators. After they decided to focus on the goods they are each comparatively better at producing, they could trade and end up with more of both goods than before, proving the beneficial nature of free trade and specialization.
The complete question is: Consider two hypothetical countries of Parma and Zan. Parma is a major producer of cheese and wheat while Zan specializes in the production of cardboard and agricultural parts. Engaging in free trade is: