Specialization and trade are closely linked to
A)absolute advantage.
B)comparative advantage.
C)gains to some traders that exactly offset losses to other traders.
D)shrinkage of the economic pie.

Question

Quizplus · Accepted Answer

Specialization and trade are based on the principle of comparative advantage, which states that countries should specialize in producing and exporting goods in which they have a lower opportunity cost than other countries. By doing so, both countries can increase their overall welfare and benefit from trade. absolute advantage (A) may lead to trade, but it is not necessary for it to occur. Choice C is incorrect because gains from trade are not necessarily offset by losses to other traders; both parties can benefit from trade. Choice D is also incorrect; specialization and trade can actually expand the economic pie by allowing countries to produce and consume more efficiently.

Specialization and Trade Are Closely Linked to