Nations will be able to produce a larger joint output and realize mutual gains when each specializes in the production of those items for which it is a low-opportunity cost producer and trades for those things that it could produce only at a high cost. This statement best describes the
A) free rider problem.
B) infant-industry argument.
C) law of comparative advantage.
D) equation of exchange.

Question

Quizplus · Accepted Answer

The statement describes the law of comparative advantage, which suggests that nations should specialize in producing goods for which they have a lower opportunity cost and trade for goods that would be more costly for them to produce.

Nations Will Be Able to Produce a Larger Joint Output