Which of the following situations would allow agents to gain from specialization and trade with one another?

Choose 1 answer:
(A) The terms of trade are between the two agents' opportunity costs.
(B) The agents have the same opportunity costs.
(c) One agent has absolute advantage in both goods.
(D) One agent has comparative advantage in both goods.
(E) Either agent has absolute advantage in either of the goods.

Question

Which of the following situations would allow agents to gain from specialization and trade with one another?

Choose 1 answer:
(A) The terms of trade are between the two agents' opportunity costs.
(B) The agents have the same opportunity costs.
(c) One agent has absolute advantage in both goods.
(D) One agent has comparative advantage in both goods.
(E) Either agent has absolute advantage in either of the goods.

Accepted Answer

Certainly! Let's analyze the given question from a macroeconomic perspective. **Question:** Which of the following situations would allow agents to gain from specialization and trade with one another? Choose 1 answer: (A) The terms of trade are between the two agents' opportunity costs. (B) The agents have the same opportunity costs. (C) One agent has absolute advantage in both goods. (D) One agent has comparative advantage in both goods. (E) Either agent has absolute advantage in either of the goods. ∻Solution∻ ‖ a ⋮ Comparative Advantage: Comparative advantage occurs when an agent can produce a good at a lower opportunity cost than another agent. ‖ ‖ b ⋮ Terms of Trade: For trade to be beneficial, the terms of trade must lie between the opportunity costs of the two agents. This ensures that both agents can gain from trade. ‖ ‖ c ⋮ Absolute Advantage: Absolute advantage refers to the ability of an agent to produce more of a good with the same amount of resources. However, absolute advantage alone does not guarantee gains from trade. ‖ ‖ d ⋮ Same Opportunity Costs: If both agents have the same opportunity costs, there is no comparative advantage, and thus, no basis for beneficial trade. ‖ ∻Answer∻ ⚹ (A) The terms of trade are between the two agents' opportunity costs. ⚹ ∻Key Concept∻ ⚹ Comparative Advantage ⚹ ∻Explanation∻ ⚹ Agents can gain from specialization and trade when the terms of trade are between their opportunity costs. This allows each agent to specialize in the production of the good for which they have a comparative advantage, leading to mutual gains from trade. ⚹◊How does comparative advantage impact the gains from specialization and trade between agents?⍭ Generate me a similar question◊

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