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The theory of comparative advantage explains why nations benefit from free trade. It states that countries should specialize in producing goods where they have a lower opportunity cost compared to other nations. While Country B has an absolute advantage in producing both food and textiles, Country A has a comparative advantage in textiles due to a lower opportunity cost. With free trade, both countries can consume more by specializing - Country A shifts production to textiles and Country B to food. Total ou

Author

issacvabraham

Language

EN