Question

If two countries have differing opportunity costs of production for two goods, then:


Question 3 options:

each country should purchase inputs from the other country in order to gain an absolute advantage.



only the country with an absolute advantage in the production of both goods stands to gain from trade.



each country should specialise in the good for which it has a higher opportunity cost of production.


each country should specialise in the production of the good for which it has a relative advantage.

Answer 1

The correct answer is:

**each country should specialise in the production of the good for which it has a relative advantage.**

This aligns with the principles of comparative advantage, where countries benefit from specialization and trade by producing goods for which they have a lower opportunity cost compared to others.