The notion that specialization in goods that one can produce at a low opportunity cost will make it possible for trading partners to produce a larger joint output is called

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Taniya Mitchell

Business

23 April, 08:41

The notion that specialization in goods that one can produce at a low opportunity cost will make it possible for trading partners to produce a larger joint output is called

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Answers (1)

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Libby Lamb · Answer 1

The correct answer is: The law of comparative advantage.

Explanation:

Comparative advantage refers to the situation when an individual, a firm, or a nation can produce a good or service at a comparatively lower opportunity cost.

With the opening up of trade the nation or individual will produce and trade the good it has a comparative advantage in or the good it specializes in producing.

It will export this good to others and import the goods it has a higher opportunity cost in producing. In this way, both the nations or individuals will be able to consume beyond their production possibilities curves.

So, both of them will be able to gain from trade.