#1
What is comparative advantage in economics?
The ability of a country to produce a good at a lower opportunity cost than another country
ExplanationAbility to produce a good at lower opportunity cost.
#2
What is opportunity cost?
The cost of producing a good in terms of the value of the next best alternative
ExplanationCost of a good in terms of next best alternative.
#3
What does the law of comparative advantage suggest about international trade?
Countries should specialize in producing goods in which they have a comparative advantage and trade with other countries to obtain goods in which they have a comparative disadvantage.
ExplanationSpecialize in comparative advantage and trade for disadvantage goods.
#4
Which of the following best describes the concept of absolute advantage?
The ability of a country to produce a good using fewer resources than another country.
ExplanationProducing a good using fewer resources.
#5
What does the law of comparative advantage imply about the distribution of production across countries?
Each country should specialize in producing goods for which it has a comparative advantage.
ExplanationSpecialize in comparative advantage goods.
#6
What is the primary assumption made when constructing a production possibilities curve (PPC)?
Opportunity costs are constant.
ExplanationConstant opportunity costs assumption.
#7
In economics, what does a production possibilities frontier (PPF) illustrate?
The maximum combination of goods and services that can be produced given current resources and technology
ExplanationMaximum production given resources and technology.
#8
Which of the following is an implication of having comparative advantage in producing a good?
A country can benefit from specializing in producing and exporting the good in which it has comparative advantage
ExplanationSpecializing in exporting goods of comparative advantage.
#9
What is the main difference between absolute advantage and comparative advantage?
Absolute advantage refers to the ability to produce more of a good using fewer resources, while comparative advantage refers to the ability to produce a good at a lower opportunity cost.
ExplanationProducing more with fewer resources vs. lower opportunity cost.
#10
What does the production possibility curve illustrate?
The various combinations of two goods that can be produced with limited resources and technology.
ExplanationCombinations of goods with limited resources.
#11
What is the primary assumption behind the theory of comparative advantage?
There are differences in the opportunity costs of producing goods between countries.
ExplanationDifferences in opportunity costs between countries.
#12
How does specialization based on comparative advantage benefit trading partners?
It leads to increased total output and consumption for both trading partners.
ExplanationIncreased output and consumption for trading partners.
#13
In economics, what is the law of increasing opportunity cost?
As production of a good increases, the opportunity cost of producing another good also increases
ExplanationIncreasing opportunity cost with increased production.
#14
In economics, what does diminishing marginal returns refer to?
The principle that as more of a variable input is added to a fixed input, the additional output produced per unit of the variable input eventually decreases.
ExplanationDecreasing additional output with added input.
#15
Which of the following is NOT a factor affecting comparative advantage?
Government regulations
ExplanationNot affected by government regulations.
#16
What happens to a country's production possibilities frontier (PPF) when it specializes according to comparative advantage and engages in trade?
It shifts outward.
ExplanationPPF shifts outward.
#17
Which of the following is a potential drawback of specializing in accordance with comparative advantage?
Vulnerability to changes in global market conditions.
ExplanationVulnerability to global market changes.
#18
In the context of comparative advantage, what does it mean if a country has an opportunity cost of production of 3 units of Good A for every 2 units of Good B?
The country has a comparative advantage in producing Good B.
ExplanationComparative advantage in producing Good B.