📚 Learning Guide
Absolute and Comparative Advantage
hard

In the context of international trade, which of the following scenarios best illustrates the principle of comparative advantage considering factor endowments and economic efficiency?

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Choose the Best Answer

A

A country with abundant natural resources specializing in the production of raw materials while importing manufactured goods.

B

A technologically advanced country focusing on agriculture and exporting machinery.

C

A nation with a high labor force producing textiles and importing food items.

D

A country producing both cars and electronics equally, with no trade specialization.

Understanding the Answer

Let's break down why this is correct

Answer

Comparative advantage is the idea that a country should specialize in producing goods that it can make more efficiently than other goods, even if it can produce everything better than another country. For example, imagine Country A can produce both cars and wheat, but it is much better at making cars. Meanwhile, Country B is less efficient at making both but is relatively better at producing wheat. If Country A focuses on making cars and Country B focuses on wheat, both countries can trade and end up with more of both goods than if they tried to produce everything on their own. This way, each country uses its resources more efficiently, benefiting from their unique strengths.

Detailed Explanation

This option shows a country using its natural resources well. Other options are incorrect because This option suggests a country with tech skills should focus on farming; Here, a country with many workers makes textiles but imports food.

Key Concepts

Comparative advantage
Economic efficiency
Factor endowments
Topic

Absolute and Comparative Advantage

Difficulty

hard level question

Cognitive Level

understand

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