#1
What is the basic principle of comparative advantage in international trade?
Specialization based on opportunity cost
ExplanationCountries should focus on producing goods in which they have a lower opportunity cost, leading to specialization and mutual benefits in trade.
#2
How does technological advancement impact the principle of comparative advantage?
Leads to increased specialization
ExplanationTechnological advancement enables countries to specialize further, enhancing productivity and the benefits of comparative advantage.
#3
Which factor is NOT considered in determining comparative advantage?
Technological capabilities
ExplanationWhile technological capabilities influence efficiency, comparative advantage focuses on opportunity costs and does not directly consider technological capabilities.
#4
According to the principle of comparative advantage, what happens if two countries have the same opportunity costs for producing goods?
Specialization and trade will not occur.
ExplanationIf two countries have the same opportunity costs, there is no incentive for specialization and trade, as there is no relative advantage in production.
#5
Who introduced the concept of comparative advantage?
David Ricardo
ExplanationDavid Ricardo, a classical economist, first proposed the idea of comparative advantage, emphasizing the gains from trade.
#6
What is the opportunity cost in the context of comparative advantage?
The cost of producing one unit of a good in terms of another forgone good
ExplanationOpportunity cost refers to the value of the next best alternative forgone when choosing to produce a particular good.
#7
What role does the terms of trade play in the context of international trade?
It influences the ratio at which countries exchange their goods
ExplanationTerms of trade determine the exchange ratio of one country's goods for another's, affecting the overall benefits of trade.
#8
According to the principle of comparative advantage, should a country produce all goods internally or specialize in production and engage in trade?
Specialize in production and engage in trade
ExplanationCountries should specialize in producing goods where they have a comparative advantage and engage in trade to maximize overall welfare.
#9
What is the primary goal of the World Trade Organization (WTO)?
To facilitate global economic cooperation and trade negotiations
ExplanationThe WTO aims to promote global economic cooperation, reduce trade barriers, and facilitate negotiations to enhance international trade.
#10
In international trade, what does absolute advantage refer to?
Ability to produce a good using fewer resources than others
ExplanationAbsolute advantage is the ability to produce a good more efficiently or with fewer resources than other countries.
#11
How does the principle of comparative advantage support the concept of free trade?
It emphasizes mutual benefits through specialization and trade
ExplanationComparative advantage encourages countries to specialize in production, leading to efficiency and mutual gains, which aligns with the principles of free trade.
#12
What is a trade deficit, and how does it relate to the principle of comparative advantage?
Excess of imports over exports
ExplanationA trade deficit occurs when a country imports more than it exports, and it may not necessarily contradict the principle of comparative advantage, as trade balances are influenced by various factors.
#13
In the context of international trade, what is the Smoot-Hawley Tariff Act known for?
Raising tariffs, contributing to the Great Depression
ExplanationThe Smoot-Hawley Tariff Act raised tariffs on imported goods, worsening the economic conditions during the Great Depression.
#14
How does the concept of comparative advantage relate to the concept of economic efficiency?
It emphasizes efficient resource allocation through specialization
ExplanationComparative advantage promotes economic efficiency by encouraging countries to allocate resources based on their strengths and specialization.