A fundamental principle of international trade is that

A) a country could never have lower resource costs than other countries in the production of ALL goods and services.
B) a country could never have lower opportunity costs than other countries in the production of ALL goods and services.
C) two nations could both have a comparative advantage over each other in production of the same good.
D) the world gains from trade because trade allows production of goods and services to move to nations with the lowest resource cost.

Question

urmilla chowdhury · Accepted Answer

Final Answer : B, Explanation :  The principle of comparative advantage states that a country should produce where its opportunity cost of production is lowest, meaning that it can produce a good at a lower cost (in terms of foregone production of another good) than other countries. This means that a country could have a comparative advantage in producing certain goods, even if it has higher resource costs than other countries. Therefore, option A is incorrect. Option C is correct because two countries can have different comparative advantages in producing the same good due to differences in their resource endowments or other factors. Option D is also incorrect because the world gains from trade not only by allowing production to move to countries with the lowest resource cost, but also by allowing countries to specialize in producing goods in which they have a comparative advantage, leading to an overall increase in efficiency and higher global output.

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