Suppose that Greece and Portugal are both engaged in the production of grapes and figs, and that Greece has an absolute advantage in the production of both goods. If Portugal has a lower opportunity cost for producing figs, then

A) Portugal has a comparative advantage in the production of figs, but it is outweighed by Portugal's absolute advantage in fig production.
B) Greece has a comparative advantage in the production of both goods.
C) Portugal has a comparative advantage in fig production, but there will be no gains from specialization and trade.
D) Portugal has a comparative advantage in the production of figs, and specialization and trade between the two countries can be mutually beneficial.

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Sanjay Sinha · Accepted Answer

Final Answer : D, Explanation :  Portugal having a lower opportunity cost for producing figs means it sacrifices less of other goods (in this case, grapes) to produce figs than Greece does, which defines comparative advantage. This allows for mutually beneficial trade, where each country specializes in the production of the good for which it has a comparative advantage.

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