#1
What is the concept of comparative advantage in international trade?
Producing goods at the lowest opportunity cost
ExplanationEfficient production with minimized opportunity cost.
#2
Who introduced the theory of comparative advantage?
David Ricardo
ExplanationConceptualized by David Ricardo.
#3
In international trade, what does opportunity cost refer to?
The value of the next best alternative given up
ExplanationThe sacrificed alternative's value.
#4
What is the main advantage of countries following the principle of comparative advantage?
Maximized production efficiency
ExplanationOptimal efficiency in production.
#5
What role do factor endowments play in the theory of comparative advantage?
Factor endowments determine the opportunity cost of production and influence comparative advantage.
ExplanationFactor availability shapes production cost and advantage.
#6
Why might a country with an absolute disadvantage in all goods still engage in international trade?
To take advantage of the principle of comparative advantage.
ExplanationLeveraging relative strengths despite absolute weaknesses.
#7
How does currency exchange rates affect comparative advantage?
Fluctuations in exchange rates can influence the competitiveness of goods in international markets.
ExplanationExchange rate changes alter global competitiveness.
#8
How does comparative advantage contribute to global economic welfare?
By encouraging countries to focus on their strengths
ExplanationStrength-based specialization enhances global welfare.
#9
What is the difference between absolute advantage and comparative advantage in international trade?
Comparative advantage emphasizes producing at the lowest cost, while absolute advantage looks at total production output.
ExplanationCost minimization vs. total output consideration.
#10
What is the significance of the terms 'import substitution' and 'export promotion' in the context of comparative advantage?
Import substitution aims to reduce reliance on foreign goods, while export promotion seeks to boost a country's global exports.
ExplanationShift from foreign dependency & global export promotion.
#11
How does technological innovation impact comparative advantage in international trade?
It can shift comparative advantage by influencing production costs and efficiency.
ExplanationTechnological advancement alters cost dynamics.
#12
What is the primary drawback of relying solely on comparative advantage in international trade?
Overemphasis on specialization and vulnerability to external shocks
ExplanationRisk of excessive specialization and susceptibility to shocks.