Sia
Question
Macroeconomics
Posted 8 months ago
Which of the following statements about specialization and trade is true?
Choose 1 answer:
A A country should specialize in and export the good for which it has absolute advantage.
(B) A country should specialize in and import the good for which it has comparative advantage.
(c) A country should specialize in and import the good for which it has absolute advantage.
D A country should specialize in and export the good for which they have comparative advantage.
(E) Both countries should specialize and trade in the same good if their opportunity costs are equal.
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Answer from Sia
Posted 8 months ago
Solution
a
Absolute Advantage: Absolute advantage refers to the ability of a country to produce a good more efficiently (using fewer resources) than another country
b
Comparative Advantage: Comparative advantage refers to the ability of a country to produce a good at a lower opportunity cost than another country
c
Opportunity Cost: Opportunity cost is the value of the next best alternative that is foregone when a choice is made
d
Specialization and Trade: According to the theory of comparative advantage, countries should specialize in the production of goods for which they have a comparative advantage and trade for goods for which they do not
e
Correct Statement: The correct statement is "A country should specialize in and export the good for which they have comparative advantage."
Answer
D A country should specialize in and export the good for which they have comparative advantage.
Key Concept
Comparative Advantage
Explanation
Comparative advantage is the principle that a country should specialize in producing and exporting goods for which it has the lowest opportunity cost, and import goods for which other countries have a lower opportunity cost. This maximizes global efficiency and benefits all trading partners.
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