The theory of comparative advantage states that:
A) Productivity rises more quickly when countries produce goods and services for which they have a natural talent.
B) Productivity decreases when countries produce goods and services based on their natural resources.
C) All countries start out on an equal playing field.
D) Countries that operate under a policy of isolationism have a comparative advantage.

Question

Quizplus · Accepted Answer

The theory of comparative advantage, proposed by economist David Ricardo, suggests that countries benefit from specializing in the production of goods and services for which they have a relative efficiency or "natural talent." This specialization leads to increased productivity and mutual gains from trade, as countries can then trade these goods and services with each other, each benefiting from the other's comparative advantages.

The Theory of Comparative Advantage States That