Question

Two countries can gain from specialization and trade as long as they have different opportunity costs in the production of some goods.a) trueb) false

Answer 1

Answer:

True

Explanation:

the country with the lower opportunity cost in producing a good is more efficient in production and should specialise in production of that good. While the country with the higher opportunity cost is inefficient in the production of the good and should import from the country with the lower opportunity cost.

Let's illustrate with an example

Scenario A

Country X's opportunity cost in the production of good A = 12 units of B

Country Y's opportunity cost in the production of good A = 2 units of B

Country Y is more efficient and should specialise in the production of good A

Scenario B

Country X's opportunity cost in the production of good A = 12 units of B

Country Y's opportunity cost in the production of good A = 12 units of B

Both countries have the same opportunity cost, so, we can't decide which country should specialise