Question

Which of the following would not result from all countries specializing according to the principle of comparative advantage? a. Worldwide production of goods and services would increase. b. The well-being of citizens in each country would be enhanced. c. The size of the economic pie would increase. d. Each country’s production possibilities frontier would shift inward.

Answer 1

Answer:

The correct answer is option d.

Explanation:

Specialization in trade due to the difference in opportunity cost helps in improved allocation of resources globally. It leads to increased production of goods and services around the world as the resources are efficiently allocated.  

The well being of people worldwide will be improved, both producers and consumers will be better off. The size of the economic pie will increase with increased production.  

The improved allocation will shift the production possibilities outward as countries will be able to produce more.