Comparative Advantage Drives Trade Benefits

Steps:

• Identify that trade benefits arise when countries specialize based on relative efficiencies, not absolute ones.
• Recall comparative advantage: a country has it in a good if its opportunity cost is lower than another's.
• Compare opportunity costs for wheat and cars between Country X and Y to determine specialization.
• Conclude both gain by trading: each produces what it does relatively better and exchanges for the other.

Why C is correct:

• Comparative advantage, per Ricardo's theory, allows specialization and trade where opportunity costs differ, enabling mutual gains even if one country is absolutely more efficient overall.

Why the others are wrong:

• A: Absolute advantage in both goods means Country Y is better at everything, but trade requires differing opportunity costs for gains.
• B: Same issue as A; Country X's absolute edge in both prevents beneficial specialization and trade.
• D: Equal opportunity costs mean no relative efficiency differences, so no basis for specialization or trade benefits.

Final answer: C