The principle of comparative advantage states that specialization increases productivity,but the principle of increasing opportunity costs states that when you increase production of a single good you must use increasingly costly resources.These two principles
A) are evidence that economic theory is internally inconsistent.
B) are an example of the difference between abstract models and the real world.
C) cannot be true at the same time.
D) together account for the outward bow shape of production possibility curves.
E) explain the circular flow of income.

Question

Quizplus · Accepted Answer

The principle of comparative advantage and the principle of increasing opportunity costs both contribute to the outward bow shape of production possibility curves. The principle of comparative advantage explains why specialization is beneficial, while the principle of increasing opportunity costs suggests that as more of a good is produced, the opportunity cost of producing additional units increases, causing the production possibility curve to bow outward. Therefore, both principles are true and can coexist.

The Principle of Comparative Advantage States That Specialization Increases Productivity,but