What benefits are to be gained from countries producing according to the law of comparative advantage? What if a country is absolutely more productive in all goods?
When countries produce according to the law of comparative advantage and then trade, the consumption possibilities expand for all countries involved. This is because producing goods for which a country has a comparative advantage means that goods are produced at the lowest relative opportunity cost, thus freeing resources for the production of more goods. Even if a country has an absolute advantage, it will still gain from trade because it is comparative, not absolute, advantage that determines which countries should produce which goods.
You might also like to view...
Hedging risk for a long position is accomplished by
A) taking another long position. B) taking a short position. C) taking additional long and short positions in equal amounts. D) taking a neutral position.
If the absolute price elasticity of demand for a product is less than 1, then
A) the absolute price elasticity of demand is inelastic and consumers are relatively insensitive to price changes. B) the absolute price elasticity of demand is inelastic and consumers are relatively sensitive to price changes. C) the absolute price elasticity of demand is elastic and consumers are relatively insensitive to price changes. D) the absolute price elasticity of demand is elastic and consumers are relatively sensitive to price changes.