If Hong Kong and Taiwan have identical production possibilities curves that are subject to increasing opportunity costs ?
Correct answer: A. Trade would depend on difference in demand conditions
- A. Trade would depend on difference in demand conditions
- B. Trade would depend on economies of large-scale production
- C. Trade would depend on the use of different currencies
- D. There would be no basis for gainful trade
Explanation
Identical increasing-cost production possibilities do not by themselves create comparative advantage, but different demand conditions can produce different autarky prices and make mutually beneficial trade possible. Economies of scale are not stated in the question.
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