📚 Learning Guide
Comparative Advantage Analysis
hard

Arrange the following steps in the process of utilizing comparative advantage in international trade: A) Specialization in goods with lower opportunity costs, B) Trade between countries based on these specializations, C) Assessment of opportunity costs for different goods, D) Increased overall efficiency and welfare among trading nations.

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Choose the Best Answer

A

C → A → B → D

B

A → C → B → D

C

C → B → A → D

D

A → B → C → D

Understanding the Answer

Let's break down why this is correct

Answer

To utilize comparative advantage in international trade, the first step is to assess the opportunity costs for different goods. This means understanding what each country gives up to produce a certain good. Next, countries will specialize in producing the goods where they have the lowest opportunity costs, which allows them to produce more efficiently. After specializing, countries will engage in trade based on these specializations, exchanging goods that they each produce efficiently. Finally, this process leads to increased overall efficiency and welfare among trading nations, as they can enjoy a greater variety of goods at lower prices.

Detailed Explanation

First, countries look at what they give up to make goods, called opportunity costs. Other options are incorrect because This suggests countries specialize before understanding their opportunity costs; This order implies trading before specialization.

Key Concepts

Comparative Advantage
International Trade
Opportunity Cost
Topic

Comparative Advantage Analysis

Difficulty

hard level question

Cognitive Level

understand

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