Which of the following statements about trade is true?
a. Unrestricted international trade benefits every person in a country equally.
b. Trade can potentially benefit everyone in society because it allows people to specialize in activities in which they have a comparative advantage.
c. People that are skilled at all activities cannot benefit from trade.
d. Trade can potentially benefit everyone in society because it allows people to specialize in activities in which they have an absolute advantage.
The correct answer and explanation is:
Correct Answer: b. Trade can potentially benefit everyone in society because it allows people to specialize in activities in which they have a comparative advantage.
Explanation:
Trade is a fundamental aspect of economic growth and prosperity. The principle of comparative advantage explains why trade can be beneficial for all participants. Comparative advantage occurs when an individual, business, or country can produce a good or service at a lower opportunity cost than others. By specializing in activities where they hold a comparative advantage, individuals and nations can maximize efficiency and total output.
For example, consider two countries—one that is highly efficient in manufacturing automobiles and another that excels in producing agricultural goods. If each country specializes in what it does best and then trades with the other, both will end up with more cars and more food than if they had attempted to produce everything themselves.
Unlike absolute advantage, which refers to the ability to produce more of a good using fewer resources, comparative advantage ensures that trade is beneficial even when one party is less efficient at producing everything. This principle ensures that resources are allocated in the most productive way, benefiting both producers and consumers.
On the other hand, the incorrect answers reflect common misconceptions:
- Option A is incorrect because trade does not benefit every person equally; some workers may lose jobs in industries that are less competitive.
- Option C is incorrect because even those who are skilled in all activities can benefit from specialization.
- Option D is incorrect because absolute advantage is not necessary for mutually beneficial trade; comparative advantage is the key principle.
Thus, trade fosters economic growth, increases consumer choices, and enhances global cooperation, making it a powerful tool for improving overall societal well-being.
Generating an Image:
I’ll create an image illustrating the concept of comparative advantage with two countries trading goods based on specialization.
I’ve created an image illustrating the concept of comparative advantage with two countries specializing in trade. Let me know if you need any modifications or further explanations!
