Free Trade Drives International Specialization

Steps:

• Identify the concept: International specialization occurs when countries focus on producing goods they can make most efficiently.
• Recall economic theory: Comparative advantage explains why countries benefit from specializing and trading.
• Evaluate options: Check which policy or condition allows unrestricted exchange to realize these gains.
• Select the enabler: Free trade removes barriers, encouraging specialization.

Why C is correct:

• Free trade allows countries to specialize according to comparative advantage, as per Ricardo's law, maximizing global efficiency through voluntary exchange.

Why the others are wrong:

• A: Foreign exchange shortages restrict imports, discouraging specialization by limiting trade.
• B: Diseconomies of scale increase costs at large output levels, hindering rather than encouraging specialization.
• D: Quotas limit import quantities, protecting domestic industries and reducing incentives for international specialization.

Final answer: C