According to the theory of comparative advantages, countries are to specialize based on their
- absolute cost advantages
- absolute cost disadvantages
-
comparative cost advantages
- comparative cost disadvantages
- the availability of labour
The correct answer is: C
Explanation
The theory of comparative advantage states that if countries specialise in producing goods where they have a lower opportunity cost – then there will be an increase in economic welfare.
The law of comparative advantage describes how, under free trade, an agent will produce more of and consume less of a good for which they have a comparative advantage.