Italy and India are countries that trade with each other. If Italy has a comparative advantage in cell phones and India has a comparative advantage in hats , which of the following is a correct statement about the effects of trade between these nations?

A. Italy will lose jobs in the cell phone industry.

B. Both countries are likely to be better off, and world production will increase.

C. There will be a net loss of employment in India.

D. Both countries will lose jobs through trade and be worse off.

Question

Business

Haley Brooks

8 October, 13:02

Italy and India are countries that trade with each other. If Italy has a comparative advantage in cell phones and India has a comparative advantage in hats , which of the following is a correct statement about the effects of trade between these nations?

A. Italy will lose jobs in the cell phone industry.

B. Both countries are likely to be better off, and world production will increase.

C. There will be a net loss of employment in India.

D. Both countries will lose jobs through trade and be worse off.

+3

Answers (1)

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Helen Kim · Answer 1

Answer: Option B

Explanation: It would be better for both the countries to trade with each other. India will save its opportunity cost of producing cell phones and Italy will save it on production of hats. Also the employment will increase in both countries in the relative sector in which they have competitive advantage over the other.

Thus, from the above we can conclude that the correct option is B.