Which option best explains why countries trade with each other?
A. to eliminate scarce resources
B. to eliminate excess resources
C. to sell goods they cannot produce locally
D. to obtain goods they cannot produce efficiently
The correct answer and explanation is:
The correct answer is D. to obtain goods they cannot produce efficiently.
Countries trade with each other primarily because it allows them to acquire goods and services that they are unable to produce efficiently or at all. Each country has different resources, technologies, and economic capabilities, which leads to comparative advantages in the production of certain goods. This concept is rooted in the theory of comparative advantage, which was developed by economist David Ricardo. According to this theory, even if one country can produce all goods more efficiently than another, both countries can still benefit from trade by specializing in the goods for which they have the greatest relative efficiency.
When countries engage in trade, they can focus on producing goods in which they have a comparative advantage—meaning they can produce certain goods at a lower opportunity cost compared to others. As a result, trade allows countries to access a wider variety of goods and services than they could produce domestically. This benefits consumers by providing more choices and can lower the cost of goods, as it encourages competition and specialization.
In addition, trade enables countries to export goods in which they have an excess, which can be exchanged for goods they are less efficient at producing. For example, a country with an abundant supply of agricultural products might trade these for high-tech machinery or pharmaceuticals that it cannot efficiently produce on its own. In this way, trade creates mutual benefits and supports economic growth by allowing countries to leverage their strengths and fill gaps in their domestic production. Ultimately, trade fosters economic interdependence and helps promote prosperity globally.