Concept:Countries trade with one another primarily due to differences in comparative cost, as explained by the theory of comparative advantage.
Explanation:Nations engage in external trade because their production costs differ.
The key driver is the difference in comparative cost.
Comparative cost advantage occurs when a country produces a good at a lower opportunity cost than its trading partners.
This principle was propounded by David Ricardo.
It shows that mutually beneficial trade is possible even if one country is absolutely more efficient in producing all goods.
Therefore, trade is not based on absolute cost, fixed cost, or variable cost.
Absolute cost refers to producing goods with fewer total resources, but it is not the main reason for international trade.
Fixed and variable costs relate to production operations and do not explain why nations trade externally.
Answer:A. Comparative cost