Italy and India are countries that trade with each other. If Italy has a comparative advantage in cell phones and India has a comparative advantage in hats, which of the following is a correct statement about the effects of trade between these nations.

Both countries are likely to be better off, and world production will increase.

Explanation:

According to the law of comparative advantage, a nation should specialize on what it has expertise or expends less time in producing, sell it an then import what it does not have comparative advantage in producing.

Both Italy and India will benefit from trade and world production of cell phones and hat will increase because each country will focus their resources on the production of goods (cell phones and hats) they have comparative advantage in producing thus resulting in increased output of both goods and then export them and import the goods they have lesser comparative advantage in producing. By this method, both countries specializes and save the resource such as labour and time needed for the goods they actually do not have comparative advantage in producing.

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