Suppose that the country of Xenophobia chose to isolate itself from the rest of the world. Its ruler proclaimed that Xenophobia should become self-sufficient, and so would not engage in foreign trade. From an economic perspective, when would this idea make sense?
A)If Xenophobia had an absolute advantage in all goods.
B)If Xenophobia had no absolute advantages in any goods.
C)Never as long as Xenophobia had a comparative advantage in any good.
D)Never as long as Xenophobia had an absolute advantage in at least half the goods traded.

Question

Quizplus · Accepted Answer

This is because even if Xenophobia had no absolute advantage in any good, it may still have a comparative advantage in certain goods. By isolating itself, Xenophobia would lose out on the opportunity to benefit from trade and would have to produce all goods domestically, which could result in higher costs and lower efficiency. Therefore, the idea of self-sufficiency would only make sense if Xenophobia had no comparative advantage in any good, which is unlikely to be the case.

Suppose That the Country of Xenophobia Chose to Isolate Itself