Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It allows each country to produce more of a good in which they have a comparative advantage.
B
It eliminates the need for trade entirely.
C
It ensures that both countries will produce the same amount of goods.
D
It increases the overall costs of production.
Understanding the Answer
Let's break down why this is correct
Answer
David Ricardo's theory of comparative advantage explains how countries can benefit from trade by specializing in producing goods where they have a lower opportunity cost. This means that each country should focus on making the things they are relatively better at producing compared to other goods. For example, if Country A is better at making wine and Country B is better at making cloth, both countries can trade wine for cloth. By specializing, they can produce more of both goods than if they tried to make them on their own. This way, both countries enjoy a greater variety of products and higher overall efficiency in production.
Detailed Explanation
When countries focus on what they do best, they can make more of that product. Other options are incorrect because Some might think that focusing on one thing means countries won't need to trade; It's a common mistake to believe that specialization means countries will make the same amount of goods.
Key Concepts
Specialization benefits
David Ricardo’s theory
Topic
Absolute and Comparative Advantage
Difficulty
medium level question
Cognitive Level
understand
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