What does the Theory of Comparative Advantage suggest?
A) Countries should always produce what they produce most efficiently
B) Countries should specialize in producing goods for which they have a lower opportunity cost
C) Countries should focus on producing luxury goods only
D) All countries should produce the same goods to ensure fairness
Which of the following is a key assumption in the Theory of Comparative Advantage?
A) All countries produce goods with equal efficiency
B) The production of goods involves fixed costs only
C) Countries can gain by trading goods for which they have a lower opportunity cost
D) There are no costs associated with trade between countries
The Theory of Comparative Advantage was developed by:
A) Adam Smith
B) David Ricardo
C) John Maynard Keynes
D) Milton Friedman
According to the Theory of Comparative Advantage, if two countries specialize in producing goods in which they have a lower opportunity cost, they:
A) Can only produce goods for domestic consumption
B) Will not benefit from trade
C) Can increase total global output by trading with each other
D) Will face higher opportunity costs
What does comparative advantage allow a country to do?
A) Produce a wider variety of goods at lower costs
B) Focus on producing only one type of good
C) Increase the number of resources it uses
D) Become completely self-sufficient
The opportunity cost of producing a good refers to:
A) The monetary cost of production
B) The amount of another good that must be sacrificed to produce one additional unit of the good
C) The total number of goods produced in a country
D) The cost of trade barriers
Which of the following would most likely result from two countries following the Theory of Comparative Advantage?
A) Both countries would benefit from trade and improve their standards of living
B) One country would gain while the other loses
C) Neither country would gain or lose
D) Both countries would experience economic decline
Which of the following is true according to the Theory of Comparative Advantage?
A) A country should always produce only the goods it is most efficient at producing
B) A country can benefit from trade by specializing in goods with a lower opportunity cost
C) Trade will only benefit a country if it produces everything domestically
D) Comparative advantage results in higher prices for all goods produced
The concept of opportunity cost is central to the Theory of Comparative Advantage because:
A) It explains why countries can produce goods for less money
B) It shows that every country can become the world leader in all goods
C) It determines how much of one good must be forgone to produce another good
D) It demonstrates that all resources are free to use in any quantity
What is the main difference between absolute advantage and comparative advantage?
A) Absolute advantage focuses on the total amount of goods produced, while comparative advantage looks at opportunity costs
B) Comparative advantage focuses on total output, while absolute advantage looks at input costs
C) Absolute advantage involves sacrificing goods, while comparative advantage does not
D) Comparative advantage is based on monetary costs, while absolute advantage focuses on the number of goods produced
According to the Theory of Comparative Advantage, if one country has an absolute advantage in producing both goods, should it still specialize?
A) Yes, if it has a lower opportunity cost in producing one good
B) No, the country should produce both goods in equal amounts
C) Yes, the country should still produce only one good
D) No, the country should focus on producing nothing at all
Which of the following is a limitation of the Theory of Comparative Advantage?
A) It assumes that all countries have the same resources
B) It ignores the effects of trade barriers such as tariffs
C) It assumes that production can only be in one sector
D) It assumes that there is no competition in international markets
What does the Theory of Comparative Advantage predict about the pattern of trade between two countries?
A) Countries will trade only when one country is better at producing everything
B) Countries will trade based on their ability to produce goods with lower opportunity costs
C) Trade will not occur between countries with similar production capabilities
D) Countries will focus on producing luxury items only
Which of the following is an example of a country specializing in goods according to its comparative advantage?
A) A country that produces both electronics and clothing equally
B) A country that produces only one good, such as agricultural products, because it has a lower opportunity cost for it
C) A country that produces goods with high tariffs to protect its industries
D) A country that produces goods inefficiently in all sectors
Which of the following can be considered a result of following the Theory of Comparative Advantage?
A) Lower global output
B) Trade imbalances in favor of one country
C) More efficient global production and increased overall welfare
D) Higher tariffs and protectionist measures
Which of the following is NOT a factor in determining comparative advantage?
A) Opportunity cost
B) Resource endowments
C) Government trade policies
D) Political stability
What is the primary benefit of comparative advantage for consumers in a trading nation?
A) Consumers will face higher prices for goods produced domestically
B) Consumers will have access to a wider variety of goods at lower prices
C) Consumers will only have access to limited domestic goods
D) Consumers will have fewer choices in the marketplace
What is the effect of comparative advantage on global resource allocation?
A) Resources are used inefficiently
B) Resources are concentrated in the hands of a few countries
C) Resources are allocated to their most productive uses across the globe
D) Resources become more evenly distributed among all countries
What does the Theory of Comparative Advantage say about the ability of all countries to benefit from trade?
A) Only countries with the highest productivity can benefit from trade
B) All countries can benefit from trade if they specialize in what they do best
C) Trade only benefits wealthy countries
D) Some countries will always lose from trade
Which of the following is an example of comparative advantage in practice?
A) A country that produces high-tech products at a lower opportunity cost than another country
B) A country that produces the same quantity of all types of goods
C) A country that produces a variety of goods with equal opportunity costs
D) A country that bans the import of foreign goods entirely
What does the Theory of Comparative Advantage say about trade restrictions?
A) They enhance the benefits of trade for all countries
B) They have no effect on trade outcomes
C) They reduce the potential gains from trade by preventing countries from specializing
D) They ensure all countries achieve equal wealth through trade
Which of the following is an example of a country failing to fully exploit its comparative advantage?
A) A country producing and exporting a good in which it has the highest opportunity cost
B) A country specializing in producing a good with a lower opportunity cost
C) A country importing goods that it could produce more efficiently
D) A country using its resources to produce goods in which it has a lower opportunity cost
In a global market where all countries specialize based on their comparative advantages, the result is:
A) Lower levels of trade
B) Higher production costs
C) Greater overall global output
D) A decrease in trade between countries
