Which of the following statements about output markets in an open economy is correct?
Show answer & explanation
Correct answer: C
Explanation
The correct answer is option 3 i.e. Trade in goods and services allows wider consumer and producer choice.
In an open economy, international trade breaks the link between domestic production and consumption. Consumers gain access to a global variety of goods and services, often at competitive prices, while producers can export to larger international markets. This specialization, based on comparative advantage, ensures that resources are allocated efficiently. Unlike a closed economy, an open market fosters innovation and provides a higher standard of living by offering more options than what is locally available.