If one country's wage level is very high relative to the other's (the relative wage exceeding the relative productivity ratios),then if they both use the same currency
A) neither country has a comparative advantage.
B) only the low wage country has a comparative advantage.
C) only the high wage country has a comparative advantage.
D) consumers will still find trade worth while from their perspective.
E) it is possible that both will enjoy the conventional gains from trade.

Question

Quizplus · Accepted Answer

Even if one country's wage level is higher than the other's, they can still enjoy the conventional gains from trade as long as they specialize in producing goods or services that have a comparative advantage in producing. The high-wage country can produce goods or services that require more skilled labor while the low-wage country can specialize in producing goods or services that require less skilled labor. This way, both countries can benefit from trade by exporting the goods or services that they are efficient at producing and importing the goods or services that are more expensive to produce domestically. Hence, it is possible that both will enjoy the conventional gains from trade, making option E the correct answer.

If One Country's Wage Level Is Very High Relative to the Other's