Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Factor endowments determine the prices of goods produced in the market.
B
Factor endowments have no effect on the comparative advantage of countries.
C
Factor endowments dictate the supply and demand curves in market equilibrium.
D
Factor endowments only influence production methods, not market equilibrium.
Understanding the Answer
Let's break down why this is correct
Answer
In a market with comparative advantage, factor endowments, which are the resources a country has, play a crucial role in determining what goods are produced and traded. For example, a country rich in fertile land might focus on agriculture, while a country with many skilled workers might specialize in technology. These differences in resources lead each country to produce what they are best at, which helps them trade effectively with others. When countries trade based on their comparative advantages, the overall market equilibrium improves because everyone gets access to a wider variety of goods at lower prices. This means that factor endowments shape not only what is produced but also how much of it is available in the market, leading to a more efficient allocation of resources.
Detailed Explanation
Factor endowments, like natural resources or skilled workers, shape how much of a good can be made. Other options are incorrect because Some might think that factor endowments only set prices directly; It's a common mistake to think factor endowments don't matter.
Key Concepts
market equilibrium
factor endowments
Topic
Comparative Advantage Analysis
Difficulty
medium level question
Cognitive Level
understand
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