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 plays a critical role in improving the efficiency and productivity of economies. The central concept that supports the benefits of trade is comparative advantage, which refers to the ability of an individual, firm, or country to produce a good or service at a lower opportunity cost than others. When people or nations specialize based on comparative advantage and then trade, they can all be better off, even if one party is more efficient in producing everything.
This specialization allows for a more efficient allocation of resources. For instance, if one country is better at producing wheat and another at producing cloth, both countries can benefit by specializing and trading. The country that produces wheat more efficiently can export it in exchange for cloth, which is produced more efficiently by the other country. As a result, both nations end up with more of both goods than they would have been able to produce on their own.
This principle explains why answer b is correct. It acknowledges that trade is not about equal benefit to all individuals but rather about potential benefit for all of society through specialization and exchange. It is important to note that although trade can potentially benefit everyone, it may not actually benefit everyone equally in practice. Some individuals or industries may face short-term losses or adjustments as economies open to trade.
The other choices are incorrect because they either misunderstand the nature of trade or misapply economic concepts. Absolute advantage is not the key factor that drives mutual benefit from trade. Also, saying that skilled people cannot benefit from trade is incorrect. Trade can still make them better off if they specialize based on opportunity cost, not raw s
