Question

Assume that Sweden has a comparative advantage in chocolate and Italy has a comparative advantage in wine. Also assume that Sweden has absolute advantage in both chocolate and wine. If there 2 countries specialize and trade so as to maximize benefits of specialization and trade, then...

A. The two countries combined output of both goods will be lower than it would be in the absence of trade.

B. The two countries will consume less than they would in the absence of trade

C. Sweden will produce more chocolate than it would produce in the absence of trade.

D. Italy would produce less wine than it would produce in the absence of trade.

Answer 1

C. Sweden will produce more chocolate than it would produce in the absence of trade.

Step-by-step explanation:

Assume that Sweden has a comparative advantage in chocolate and Italy has a comparative advantage in wine. Also assume that Sweden has absolute advantage in both chocolate and wine. If the 2 countries specialize and trade so as to maximize benefits of specialization and trade, then Sweden will produce more chocolate than it would produce in the absence of trade.

If the 2 countries involve in trade Sweden will focus more in the production of the goods it has comparative advantage in producing and produce more to meet export demand to Italy.

Law of comparative advantage states that a country should produce more of the goods it has comparative advantage in producing and trade it for the good it has lesser comparative advantage in producing