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WAEC Commerce 2010 Question 4

Question 4

Foreign Trade

Which of the following describes the reason for international trade?

  1. A.Balance of payment
  2. B.Comparative cost advantage
  3. C.Absolute cost advantage
  4. D.Balance of trade
Show the answer and explanation

Answer: B (Comparative cost advantage)

Explanation

Countries trade because each can produce some goods at a lower opportunity cost: comparative cost advantage.