Question
If two countries have differing opportunity costs of production for two goods, then:
Answers
GPT-4o mini
If two countries have differing opportunity costs of production for two goods, they can benefit from trade through comparative advantage.
Comparative advantage occurs when a country can produce a good at a lower opportunity cost than another country. This means that each country should specialize in the production of the good for which it has a comparative advantage and then trade with the other country to obtain the goods they produce more efficiently.
For example, if Country A has a lower opportunity cost for producing good X compared to good Y, while Country B has a lower opportunity cost for producing good Y compared to good X, then:
1. Country A should specialize in producing good X.
2. Country B should specialize in producing good Y.
3. They can then trade to get the goods they need, allowing both countries to enjoy a greater variety of goods and potentially increase their overall consumption.
In summary, differing opportunity costs create potential gains from trade, enabling each country to benefit by focusing on what they produce most efficiently and trading for what they produce less efficiently.
Comparative advantage occurs when a country can produce a good at a lower opportunity cost than another country. This means that each country should specialize in the production of the good for which it has a comparative advantage and then trade with the other country to obtain the goods they produce more efficiently.
For example, if Country A has a lower opportunity cost for producing good X compared to good Y, while Country B has a lower opportunity cost for producing good Y compared to good X, then:
1. Country A should specialize in producing good X.
2. Country B should specialize in producing good Y.
3. They can then trade to get the goods they need, allowing both countries to enjoy a greater variety of goods and potentially increase their overall consumption.
In summary, differing opportunity costs create potential gains from trade, enabling each country to benefit by focusing on what they produce most efficiently and trading for what they produce less efficiently.