Spain allows trade with the rest of the world.We know that Spain has a comparative advantage in producing olive oil if we know that
A)Spain imports olive oil.
B)the world price of olive oil is higher than the price of olive oil that would prevail in Spain if trade with other countries were not allowed.
C)consumer surplus in Spain would exceed producer surplus in Spain if trade with other countries were not allowed.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

If Spain has a comparative advantage in producing olive oil, the world price of olive oil should be lower than the cost of producing olive oil in Spain. However, if the world price of olive oil is higher than the price of olive oil that would prevail in Spain if trade with other countries were not allowed, this indicates that Spain cannot produce olive oil at a competitive price without trade. Thus, Spain has a comparative advantage in producing olive oil and is able to benefit from trade by exporting olive oil and importing other goods in exchange for olive oil at a lower cost than if they were to produce it domestically without trade. Option B is the only choice that reflects this situation.

Spain Allows Trade with the Rest of the World