Comparative Advantage in International Trade Quiz

Explore the theory of comparative advantage, its impact on international trade, factors influencing it, and strategic trade policies.

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What is the concept of comparative advantage in international trade?

Producing everything domestically

Producing goods at the lowest opportunity cost

Exporting without considering costs

Importing without evaluating benefits

Who introduced the theory of comparative advantage?

Adam Smith

David Ricardo

John Maynard Keynes

Milton Friedman

In international trade, what does opportunity cost refer to?

The actual cost of production

The cost of importing goods

The value of the next best alternative given up

The transportation cost

What is the main advantage of countries following the principle of comparative advantage?

Increased self-sufficiency

Maximized production efficiency

Higher import tariffs

Reduced international cooperation

What role do factor endowments play in the theory of comparative advantage?

Factor endowments have no impact on comparative advantage.

Countries with similar factor endowments cannot benefit from comparative advantage.

Factor endowments determine the opportunity cost of production and influence comparative advantage.

Comparative advantage is solely determined by a country's population size.

Why might a country with an absolute disadvantage in all goods still engage in international trade?

To maintain self-sufficiency and economic independence.

To take advantage of the principle of comparative advantage.

To avoid competition from other countries.

To impose tariffs and protect domestic industries.

How does currency exchange rates affect comparative advantage?

Exchange rates have no impact on comparative advantage.

Fluctuations in exchange rates can influence the competitiveness of goods in international markets.

Countries with strong currencies always have a comparative advantage.

Exchange rates only matter for import, not export.

How does comparative advantage contribute to global economic welfare?

By promoting protectionist trade policies

By encouraging countries to focus on their strengths

By eliminating international trade

By increasing trade barriers

What is the difference between absolute advantage and comparative advantage in international trade?

Absolute advantage focuses on monetary gains, while comparative advantage considers opportunity costs.

Comparative advantage emphasizes producing at the lowest cost, while absolute advantage looks at total production output.

Absolute advantage is based on historical trade patterns, while comparative advantage is forward-looking.

Comparative advantage only applies to service industries, while absolute advantage is relevant for manufacturing.

#10

What is the significance of the terms 'import substitution' and 'export promotion' in the context of comparative advantage?

They are alternative names for the theory of comparative advantage.

Import substitution encourages international trade, while export promotion discourages it.

Import substitution aims to reduce reliance on foreign goods, while export promotion seeks to boost a country's global exports.

They are strategies that contradict the principles of comparative advantage.

#11

How does technological innovation impact comparative advantage in international trade?

Technological innovation has no effect on comparative advantage.

It can shift comparative advantage by influencing production costs and efficiency.

Countries with advanced technology always have an absolute advantage.

Technological innovation only affects service industries, not manufacturing.

#12

What is the primary drawback of relying solely on comparative advantage in international trade?

Increased likelihood of trade wars

Overemphasis on specialization and vulnerability to external shocks

Stagnation in economic growth

Higher production costs