In a two-country,two-commodity framework,when one country has an absolute advantage in the production of both commodities,_____.

A) autarky is always preferred to trade
B) differences in the opportunity cost of production between the two countries ensure that specialization and trade result in mutual gains
C) the country with the lowest opportunity cost of production is the least competitive in international markets
D) the countries gain from mutual trade as long as tastes differ across countries
E) the countries gain from specialization and exchange as long as they are the same size

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Destin Meeks · Accepted Answer

Final Answer : B, Explanation :  When one country has an absolute advantage in the production of both commodities, it means that it can produce both goods at a lower cost than the other country. However, this does not mean that both countries cannot benefit from trade. The country with a lower opportunity cost in producing one good can specialize in that good and trade with the other country, which can specialize in producing the other good. Because each country is specializing in the good in which it has a comparative advantage, there are gains from trade due to differences in opportunity cost. Therefore, option B is correct. Options A, C, D, and E are incorrect because they do not reflect the reality of gains from trade in a two-country, two-commodity framework.

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