Question

Suppose that after specializing according to comparative​ advantage, a country is trading with another nation that also specializes according to its comparative advantage. Which of the following statements are true for the first​ country? ​i) It enjoys gains from trade. ​ii) It must have an absolute advantage in the production of the good it produces. ​iii) It is producing at a point beyond its PPF.

Answer 1

Answer:

​i) It enjoys gains from trade.

Explanation:

The idea of comparative advantage is that a country should specialize in the production of a good it has comparative advantage in and trade with it for a good it has lesser advantage in producing. Thus the country gain from trade by getting what it has lesser advantage in and save time in resource and time usage in trying to produce what it does not have comparative advantage in producing.

The first country will benefit from trade because, she has exchanged what it has comparative advantage in producing with what its does not have comparative advantage in producing thus saving time and resources.