Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
A country with an absolute advantage in producing all goods should produce everything and not trade.
B
Comparative advantage arises when a country can produce a good at a lower opportunity cost than another country.
C
Factor endowments have no impact on a country's comparative advantage in international trade.
D
A country will always benefit from trade, regardless of its production capabilities.
Understanding the Answer
Let's break down why this is correct
Answer
Comparative advantage is the idea that countries should specialize in producing goods where they have a lower opportunity cost compared to others. This means that even if one country is better at making everything (absolute advantage), it can still benefit from trade by focusing on what it does best. For example, if Country A can produce both cars and textiles but is much better at making cars, while Country B is better at textiles, Country A should specialize in cars and trade them for textiles from Country B. This way, both countries can enjoy more goods than if they tried to produce everything on their own. In essence, trade allows countries to use their resources more efficiently and maximize their overall production.
Detailed Explanation
Comparative advantage means a country can make something at a lower cost than another country. Other options are incorrect because This idea suggests a country should do everything alone; This statement ignores that resources, like land and labor, affect what a country can produce best.
Key Concepts
trade benefits
absolute advantage
factor endowments
Topic
Comparative Advantage Analysis
Difficulty
hard level question
Cognitive Level
understand
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