Question

19) How might specialization encourage trade? A) One nation will sell its specialty to others ONLY if they don't compete. B) Nations stop using products from other nations to support their own economies. C) Nations agree to work together as a team to make it easier for them to manufacture expensive items. D) One nation will focus resources on its specialty, forcing it to buy other products from other nations.

Answer 1

The correct answer is D.

Each nation will specialize in producing goods or services for which it has a comparative advantage, while other products will be imported from abroad. Each country would do the same and therefore an intense international trade will be established so that countries can purchase a variety of products and not only the ones that each manufacures.

A country A has a comparative advantage in producing good X (with respect of another good Y) if the production process of X is retatively more efficient than in other countries. This means that the opportunity cost of producing X, measured in units of good Y, is lower.

Answer 2

The correct answer is D.