Benefits of Specialization and Trade in International Economics

Hard International Economics International Trade

Clayton and Harris are two hypothetical countries engaged in international trade. Clayton has an absolute advantage in the production of both wheat and textiles due to its more fertile land and advanced technology. Harris, on the other hand, specializes in textiles and can produce them at a lower opportunity cost than wheat.

If both countries choose to specialize according to their comparative advantages and engage in trade, which of the following statements about the benefits they will experience from trade is correct?

Both countries will only benefit if they export their respective goods without importing any in return.

Trade will allow both countries to consume beyond their production possibilities frontiers by focusing on their comparative advantage.

Comparative advantage ensures that each country produces all goods at the highest efficiency, leading to no gains from trade.

Hint

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