Economic complementarities between two places tend to:

• A. increase the likelihood of trade between them
• B. decrease the overall efficiency of resource allocation
• C. reduce the potential for specialization
• D. lead to higher transportation costs

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of economic complementarities. Economic complementarities occur when two places or regions have different but mutually beneficial economic activities or resources that, when combined, enhance productivity or trade opportunities.
2. Step 2: Analyze how complementarities affect trade. When two places have complementary economic features, they can specialize in producing different goods or services that the other needs, which encourages exchange between them.
3. Step 3: Consider the impact on resource allocation. Complementarities typically improve the efficiency of resource allocation because each place focuses on what it does best, leading to gains from trade.
4. Step 4: Evaluate the effect on specialization. Complementarities promote specialization since each place can concentrate on producing goods or services where it has a comparative advantage, increasing overall economic efficiency.
5. Step 5: Reflect on transportation costs. While transportation costs are important in trade decisions, economic complementarities themselves do not inherently lead to higher transportation costs; rather, they increase the incentive to trade despite such costs.