Nation engage in external trade because of difference in

Step 1: Analyze the question The question asks why nations trade with each other. Specifically, it asks which difference drives international trade.

Step 2: Explain the concept Countries differ in their natural resources, climate, labour, capital, and technology. Because of these differences, the opportunity cost of producing a good is not the same in every country. This is the Theory of Comparative Cost (Comparative Advantage), developed by David Ricardo.

• A country should specialize in producing goods where its opportunity cost is lower than that of other countries.
• It then exports those goods and imports the ones it produces at a higher cost.
• Both countries gain from trade.

Example: Nigeria may produce crude oil and cocoa at a lower opportunity cost than Japan, while Japan produces electronics at a lower opportunity cost than Nigeria. Both benefit by trading.

Step 3: Examine the options

• A. Comparative cost: Correct. Differences in comparative (opportunity) cost are the basis of international trade.
• B. Absolute cost: Absolute advantage is also a theory of trade, but it is narrower. Trade can still benefit two countries even when one has an absolute advantage in everything, so comparative cost is the more complete explanation.
• C. Fixed cost: This is a cost that does not change with output (e.g. rent). It is unrelated to why nations trade.
• D. Variable cost: This is a cost that changes with output (e.g. raw materials). It is also unrelated to why nations trade.

Step 4: Answer The correct option is **A.

Exam tip: When you see "why nations trade", think "comparative cost / comparative advantage". Ricardo = comparative; Adam Smith = absolute. In JAMB, comparative advantage is usually the preferred answer.