Large developed countries can produce more of practically everything than can small, less developed countries. Which of the following statements is true?
A) The large country has no incentive to trade with the smaller country.
B) It would be impossible for the smaller country to have a comparative advantage in making any products that the larger country wants to buy.
C) Trade will benefit both countries if each country has a comparative advantage in a traded product.
D) Trade between the countries is more likely to benefit the small country and harm the larger country.

Question

Quizplus · Accepted Answer

Trade will benefit both countries if each has a comparative advantage in a traded product because each country will specialize in producing the product they can produce most efficiently, allowing for increased output and lower costs. The larger country may have a comparative advantage in producing some products, but the smaller country may have a comparative advantage in other products, allowing for mutually beneficial trade arrangements. Option A is incorrect because even though the larger country can produce more goods, it may still benefit from trade by obtaining goods from the smaller country at a lower cost than producing them domestically. Option B is incorrect because smaller countries can still have comparative advantages in certain niche products or labor-intensive services, as seen in countries like Costa Rica with coffee production or the Philippines with call center services. Option D is incorrect because the potential benefits and harms of trade depend on several factors, including the terms of trade, the nature of the goods traded, the comparative advantages of each country, and the distributional effects within each country.

Large Developed Countries Can Produce More of Practically Everything Than