When determining what a country should specialize in producing, economists chiefly consider comparative advantage.
What is comparative advantage and why is it important?
One advantage of comparative advantage is having the capacity to produce a good or service for a lower opportunity cost. Companies that enjoy a comparative advantage can provide their goods and services at lower prices than their competitors, which boosts their profit margins and increases their sales margins.
When a country has a comparative advantage?
When a nation can produce with a lower opportunity cost than its trading partners, it is said to have a comparative advantage. A nation can produce all goods with an absolute advantage, even though it cannot have a comparative advantage in all goods and services.
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