Question

1. We see quite a bit of international trade in the real world. And trade is driven by specialization. So why don’t we see full specialization—for instance, all cars in the world being made in South Korea, or all the mobile phones in the world being made in China? Choose the best answer from among the following choices.

1. High tariffs.

2. Extensive import quotas.

3. Increasing opportunity costs.

4. Increasing returns.

Short answer

The correct option is c) Increasing opportunity costs.

Step-by-step solution

Step 1. Explanation 

The production of goods requires resources which is scarce and limited; this resource has alternative uses. If an economy produces two goods, then to increase the production of one good, the other good production has to be reduced. Thus, opportunity cost is involved; when an economy increases production, the opportunity cost of producing that good also rises. Hence, when a nation goes for complete specialization, all the resources have to be devoted there; thus, the opportunity increases as the resources are taken from one activity to another.