Question

Which of the following is true of exchange? a. The exchange value of a good is determined by the cost of the resources required to produce the good. b. The total output trading partners are able to produce is not influenced by whether the partners trade with each other. c. Exchange permits trading partners to expand their total output of goods and services as the result of greater specialization in areas where each has a comparative advantage. d. Exchange is a zero sum activity; if one party to an exchange gains, the other must lose an equal amount.

Answer 1

Answer:

C) Exchange permits trading partners to expand their total output of goods and services as the result of greater specialization in areas where each has a comparative advantage.

Explanation:

When an economy specializes in the production of a good, it will generally do so on the products that it can produce at a lower opportunity cost. Advantages in trade result from comparative advantages, not absolute advantages. This way the economy can exchange "cheap" products (cheap for them to produce) for more expensive ones, thus resulting in gain.