The introduction of decreasing costs into the theory of comparative advantage:
A)makes it possible for trade to be mutually advantageous even if there are no pre-trade differences in comparative costs between two countries.
B)reduces the gain from international trade.
C)means, unlike the constant-cost case, that specialization will probably not be complete.
D)may be an interesting theoretical abstraction, but has little relevance in explaining why specialization and trade have, in fact, occurred.
E)would explain none of the above.

Question

Quizplus · Accepted Answer

The introduction of decreasing costs means that as production increases, the average cost of production decreases. This allows countries to produce more efficiently and produce goods at a lower cost, even if they have similar pre-trade costs to another country. Therefore, trade can still be mutually advantageous even without pre-trade differences in comparative costs.

The Introduction of Decreasing Costs into the Theory of Comparative