#1
What does the principle of comparative advantage state?
Countries should produce goods in which they have a comparative advantage.
ExplanationProducing goods where countries excel leads to economic efficiency.
#2
Which of the following is NOT a factor that influences comparative advantage?
Government regulations
ExplanationGovernment regulations do not determine comparative advantage.
#3
Which economist is primarily associated with the theory of comparative advantage?
David Ricardo
ExplanationDavid Ricardo is a key figure in the theory's development.
#4
What is the key assumption behind the theory of comparative advantage?
Perfect competition
ExplanationThe theory operates under perfect competition.
#5
Which of the following is an implication of the theory of comparative advantage?
Countries can benefit from trade even if they are less efficient in producing all goods.
ExplanationTrade benefits regardless of absolute efficiency.
#6
What does the term 'terms of trade' refer to in international trade?
The ratio at which a country can exchange its exports for imports.
ExplanationTerms of trade indicate exchange ratios.
#7
What is the relationship between specialization and comparative advantage?
Comparative advantage leads to specialization, where countries focus on producing goods they are relatively more efficient at.
ExplanationSpecialization stems from efficiency advantages.
#8
In economics, opportunity cost refers to:
The cost of the next best alternative that must be forgone.
ExplanationOpportunity cost represents the sacrificed alternative.
#9
Which scenario best illustrates a country benefiting from comparative advantage?
Country C focuses on producing goods with the lowest opportunity cost and trades for other goods.
ExplanationEfficient production and trade maximize benefits.
#10
How does a country determine its comparative advantage?
By comparing opportunity costs of production
ExplanationComparing costs helps identify advantageous production.
#11
What is the difference between absolute advantage and comparative advantage?
Absolute advantage refers to the ability to produce more with the same resources, while comparative advantage refers to the ability to produce at a lower opportunity cost.
ExplanationAbsolute advantage focuses on production quantity, while comparative advantage considers efficiency.
#12
Which factor is NOT accounted for when calculating opportunity cost?
Money
ExplanationOpportunity cost is not solely financial.
#13
In the context of comparative advantage, what is 'factor endowment'?
The resources and capabilities inherent in a country's labor force.
ExplanationFactor endowment encompasses labor resources.
#14
What is the main difference between absolute advantage and comparative advantage?
Comparative advantage considers opportunity cost, while absolute advantage does not.
ExplanationOpportunity cost distinguishes comparative advantage.
#15
How does international trade contribute to global welfare according to the principle of comparative advantage?
By allowing countries to specialize in the production of goods in which they have a comparative advantage.
ExplanationSpecialization boosts global productivity and welfare.
#16
What is the main criticism of the theory of comparative advantage?
It neglects the role of technological advancements.
ExplanationTechnological progress is a critique point.
#17
Which scenario could lead to the reversal of comparative advantage?
An increase in transportation costs
ExplanationTransport cost hikes may reverse advantages.
#18
In the context of comparative advantage, what does the Production Possibilities Frontier (PPF) illustrate?
The maximum output combinations of two goods that a country can produce given its resources and technology.
ExplanationPPF shows production limitations under given conditions.
#19
What is the significance of opportunity cost in the context of comparative advantage?
It reflects the cost of the next best alternative that must be forgone.
ExplanationOpportunity cost quantifies foregone alternatives.