Answer to Question #284036 in Economics for Hafsa

Question

Can specialization in production and mutually beneficial trade be based solely on a difference in tastes between two nations? How is this different from the more general case?

Answer 1

Adam Smith said that countries should specialize in the goods and services in which they have an absolute advantage. When countries specialize and trade, they can move beyond their production possibilities frontiers, and are thus able to consume more goods as a result.