Comparative Advantage and Trade Outcomes
Two countries, Liberland and Finance Island, engage in trade. Liberland has a lower opportunity cost of producing fish, while Finance Island has a lower opportunity cost of producing potatoes. Based on the law of comparative advantage, what is the most likely result?
ATotal output will increase, and both countries will achieve greater efficiency through specialization.
BTotal output will decrease, and the prices of both goods will increase.
COne country will become more efficient at producing both goods, leading to a price war.
DOverall productivity will decrease because each country will focus on producing only a single good.
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