Answer to Question #298284 in Macroeconomics for anna

Question

If two countries have differing opportunity costs of production for two goods, then _____

Answer 1

Opportunity cost is the value of the best alternative when a decision is made.It's literary what is given up.Which also applies among countries also when it's making a decision in it's carrying out it's production.

When comparative costs are the same among countries, it should narrow down to opportunity cost. This will enable a country to maximise it's output in the long run and have advantage over it's peers.

In international trade, for any country to stand to gain in the market it should have absolute advantage in the the production of both goods.

Each country should purchase inputs from countries that have comparative advantage.This will enable countries to have absolute advantage in their production.

Each country should specialise in the production of goods which it has relative advantage.This will make the product of a country to be more superior to the existing products in the international market.The net effect in the longrun will lead to the product of a country to be adopted more and hence gain more in balance of trade for a country.

In the longrun only a country with absolute advantage in it's production of goods stands to gain.