📚 Learning Guide
Absolute and Comparative Advantage
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In international trade, if Country A can produce wine more efficiently than Country B, while Country B can produce cheese more efficiently than Country A, which of the following statements best describes how both countries can benefit from trade?

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Choose the Best Answer

A

Both countries should specialize in producing only their most efficient product and trade with each other.

B

Country A should stop producing wine and start producing cheese.

C

Country B should produce both wine and cheese to meet its own needs.

D

Neither country should trade because they can both produce both goods.

Understanding the Answer

Let's break down why this is correct

Answer

In international trade, countries can benefit by focusing on what they produce best, known as comparative advantage. If Country A is better at making wine and Country B is better at making cheese, they should specialize in these products. By doing this, Country A can produce more wine than it needs and trade the extra for cheese from Country B, which makes cheese more efficiently. This way, both countries end up with more wine and cheese than if they tried to produce both products on their own. For example, if Country A produces 10 bottles of wine and Country B produces 5 blocks of cheese, they can trade some wine for cheese, allowing both to enjoy more of each product than they could by producing everything themselves.

Detailed Explanation

When each country focuses on what they do best, they can trade and get more of both goods. Other options are incorrect because This idea suggests Country A should stop making wine, but that would waste its efficiency; This option thinks Country B should make everything itself.

Key Concepts

Comparative advantage
Specialization benefits
Topic

Absolute and Comparative Advantage

Difficulty

medium level question

Cognitive Level

understand

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