#1
What is the concept of comparative advantage?
Producing goods at a lower opportunity cost
ExplanationCountries excel by focusing on goods with the lowest production sacrifice.
#2
What does opportunity cost refer to?
The value of the next best alternative foregone
ExplanationOpportunity cost is the sacrifice of choosing one option over another.
#3
Which economist is most closely associated with the concept of comparative advantage?
David Ricardo
ExplanationDavid Ricardo is the key figure in the development of comparative advantage theory.
#4
Which of the following is an example of a country benefiting from comparative advantage?
A country exports goods that it can produce more efficiently than other countries
ExplanationExporting goods efficiently produced enhances a country's prosperity.
#5
Which of the following is NOT a factor influencing comparative advantage?
Government regulations
ExplanationComparative advantage is shaped by efficiency, not external regulations.
#6
In the context of opportunity cost, if a farmer can produce either 20 bushels of wheat or 10 bushels of corn in a day, what is the opportunity cost of producing 1 bushel of wheat?
2 bushels of corn
ExplanationFor every bushel of wheat, 2 bushels of corn are forgone.
#7
In the context of comparative advantage, what is autarky?
A state of self-sufficiency where a country does not engage in international trade
ExplanationAutarky is a self-reliant state avoiding international trade.
#8
Which of the following best describes absolute advantage?
Producing a good using fewer resources than another producer
ExplanationAbsolute advantage is about superior resource efficiency in production.
#9
What is the relationship between comparative advantage and specialization?
Comparative advantage leads to specialization in the production of goods
ExplanationEfficient production specialization results from comparative advantage.
#10
Which of the following scenarios would lead to a country losing its comparative advantage in a particular industry?
A natural disaster that disrupts production
ExplanationDisruptions like natural disasters can alter a country's comparative advantage.
#11
Which of the following statements is true regarding comparative advantage?
Countries should produce goods for which they have the lowest opportunity cost
ExplanationEfficiency dictates countries specialize in low-cost production.
#12
How does trade affect overall welfare according to the theory of comparative advantage?
Trade can lead to an increase in overall welfare through specialization and comparative advantage
ExplanationTrade enhances welfare by leveraging specialization and comparative advantage.
#13
What is the main assumption underlying the theory of comparative advantage?
Opportunity costs are constant
ExplanationComparative advantage theory assumes unchanging opportunity costs.
#14
What is the relationship between comparative advantage and trade barriers?
Trade barriers prevent countries from realizing the benefits of comparative advantage
ExplanationBarriers hinder countries from maximizing the gains afforded by comparative advantage.
#15
Which of the following is NOT a condition necessary for the existence of comparative advantage?
Identical production technologies
ExplanationDiverse production technologies, not identical ones, foster comparative advantage.
#16
Which of the following statements is true regarding the gains from trade?
Gains from trade occur because countries have different opportunity costs
ExplanationTrade gains arise from diverse opportunity costs among countries.