If a country specializes in goods that it can produce most readily and cheaply and trades those goods for the goods that another country can produce most readily and cheaply, then both countries are exercising which of the following principles?
A) distinctive advantage
B) comparative advantage
C) absolute advantage
D) parallel competencies

Question

Quizplus · Accepted Answer

The principle being exercised here is comparative advantage, where each country specializes in producing the goods for which it has a lower opportunity cost than the other country. This leads to mutual gains from trade and an overall increase in efficiency and welfare for both countries. Distinctive advantage refers to a unique resource or capability possessed by a country that gives it an advantage in producing a certain good, while absolute advantage refers to a country's ability to produce a good more efficiently than another country in terms of absolute productivity levels. Parallel competencies is not a relevant concept in this context.

If a Country Specializes in Goods That It Can Produce