Assume a two-commodity,two-country world.Then assume that the U.S.has a comparative advantage in the production of computers and Mexico has a comparative advantage in the production of oil.Which of the following statements is true?

A) U.S.consumption of oil will decrease after the introduction of trade.
B) U.S.consumption of oil will increase after the introduction of trade.
C) Mexico's consumption of oil will decrease after the introduction of trade.
D) All of the statements are true.

Question

Darius Lamar · Accepted Answer

Final Answer : B, Explanation :  According to the theory of comparative advantage, countries should specialize in producing goods in which they have a comparative advantage and then trade with each other to acquire goods in which they do not. In this scenario, the U.S. has a comparative advantage in producing computers, so it will export computers to Mexico in exchange for oil. As a result, the U.S. will increase its consumption of oil after the introduction of trade. Mexico's consumption of oil may change depending on the terms of trade, but it is not specified in the question that it will decrease. Therefore, option B is the correct answer. Option A and C are incorrect, and option D is not applicable as not all statements are correct.

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