Question

How can the law of comparative advantage be applied to Country A and Country B? Both countries should produce petroleum and seafood. Both countries should produce petroleum. Country A should produce seafood, and Country B should produce petroleum. Country A should produce petroleum, and Country B should produce seafood.

Answer 1

D:Country A should produce petroleum, and Country B should produce seafood.

Answer 2

The fourth alternative is correct (D).

The Theory of Comparative Advantages aims to explain the commercial and economic principles on contemporary international trade between two countries. Analyzing reasons of productivity, absolute costs of production, adjustment of demands and manufacture of goods, the theory explains shows the advantages and disadvantages of specialization in a good for a country.

Basically, the copulative advantage relates to efficiency, respect, and the advantage that a country possesses by being able to produce something in which it is specialized. This makes the country capable of offering a particular product or service in an extraordinary, efficient and advantageous way - especially when compared to other countries.

Thus, the theory suggests that countries should specialize in the production of goods where production is efficient for themselves and for export, while importing the goods that other countries produce more efficiently. In the case above, country A is more efficient in producing oil and country B is more efficient in seafood.