In the context of the production possibilities frontier (PPF), comparative advantage, and trade, which of the following most directly fosters specialization and the development of worldwide supply chains?

• A. Uniform trade restrictions and high tariffs across countries, which reduce cross-border exchange
• B. Identical opportunity costs and production technologies across countries, eliminating gains from trade
• C. Differences in opportunity costs across countries, leading each to specialize in goods for which it has a comparative advantage and then trade
• D. Countries attempting to be fully self-sufficient (autarky) to avoid dependence on imports

Answer: (C)

Verified step by step guidance

1. Understand the concept of comparative advantage: it occurs when a country can produce a good at a lower opportunity cost than another country.
2. Recognize that differences in opportunity costs across countries create incentives for each country to specialize in producing goods where they have a comparative advantage.
3. Specialization based on comparative advantage leads countries to produce more efficiently and trade with others to obtain goods they produce less efficiently.
4. This specialization and trade foster the development of worldwide supply chains, as countries rely on each other for different components and products.
5. In contrast, uniform trade restrictions, identical opportunity costs, or autarky reduce or eliminate the benefits of specialization and trade, thus hindering the formation of global supply chains.