Economic theory suggests countries benefit from international trade by producing more of those good and services for which they have a comparative advantage (and less of that for which a country does not have a comparative advantage). However, countries rarely specialize completely. Why? Even with international trade, countries rarely specialize completely because

Question

Business

Elijah Orr

18 August, 12:56

Economic theory suggests countries benefit from international trade by producing more of those good and services for which they have a comparative advantage (and less of that for which a country does not have a comparative advantage). However, countries rarely specialize completely. Why? Even with international trade, countries rarely specialize completely because

+2

Answers (1)

Know the Answer?

Aliana Franklin · Answer 1

Answer: Increasing opportunity cost

Explanation:

Yes, economic theory suggest that countries producing more of those goods in which they have a comparative advantage then they must have benefit from international trade. But countries rarely specialized in the production of one good and that is because of increasing opportunity cost.

Countries with a constant opportunity cost are completely specialized in the production of one good.

In case of increasing opportunity cost, when a country shift their resources from the production of one good to another, this will lead to an increase in the opportunity cost of producing that good.

This is because of the productivity of the resources. This means that resources that are reallocate from the production of one good to another were better suited for the good whose production decreases.