Question

When nations specialize their production processes and engage in international trade, firms in those economies are able to enjoy lower per-unit costs as production expands.A.TRUEB.FALSE

Answer 1

Answer:

A.TRUE

Explanation:

The statement is true because under international trade, firms are able to take advantage of the lower costs of materials, labor, and other factors of production, thanks to international trade.

For example, if country A is good at producing paper, and country B is good at logging, firms from country A will import the pulp from country B at lower prices, and thus, will spend less in making the paper.

Also, when firms expand capacity, they benefit from economies of scale: the general reduction in average production costs as output capacity expands.

Answer 2

Answer: True

Explanation: When two countries each has a good the other needs, and it can be produced with fewer resources in one country over another, then it is easy to imagine all parties benefitting from trade, specifically on lower per unit costs as production expands. This forms the basis of absolute and comparative advantage that leads to specialization and trade agreements. A country has an absolute advantage if it takes fewer resources to produce a product than in another; a country has a comparative advantage when a good can be produced at a lower cost in terms of other goods. Countries that specialize (shifts resources to focus on producing a good that offers comparative advantage) based on comparative advantage gain from trade.