Nation A pays lower wages to workers than Nation B. Nation A also uses fewer capital goods per worker than Nation B. This suggests that gains from trade are likely to result if

A) Nation A produces products that are more capital-intensive and exports them to Nation B in return for products from Nation B that are more labor-intensive.
B) Nation A produces products that are more labor-intensive and exports them to Nation B in return for products from Nation B that are more capital-intensive.
C) Nation B produces products that are more labor-intensive and exports them to Nation A in return for products from Nation A that are more capital-intensive.
D) Nations A and B each produce capital-intensive and labor-intensive goods and trade them with each other.

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kevin mabirizi · Accepted Answer

Final Answer : B, Explanation :  If Nation A has a comparative advantage in producing goods that are more labor-intensive, then it should specialize in producing those goods and trade with Nation B, which has a comparative advantage in producing goods that are more capital-intensive. This will lead to gains from trade for both nations as they will be able to produce at a lower opportunity cost and benefit from trading the goods that they have a comparative advantage in.

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