The Law of Comparative Advantage

When one country is good at producing in a particular commodity, they have a(n) _____ .

• Comparative advantage

• Complete specialization

• Absolute advantage

• None of the above

The basis of trade based from the lowest opportunity cost is considered as ____.

• Factor Endowment

• Adam Smith Theory

• Comparative Advantage

• Absolute Advantage

Identify the basis of trade of the following table:

• Malaysia has comparative advantage in Cloth

• Malaysia has absolute advantage in Cloth production

• Japan has comparative advantage in Car

• Japan has absolute advantage in Cloth

David Ricardo theory states that ____

• Benefits can be gained through highest productivity

• Benefits can be gained from importing cheap goods

• International trade exist when prices in two countries change

• International trade will always benefit two countries equally

The rate at which goods are exchanged for one another in the international market is called ____

• The exchange rate

• An absolute advantage

• Terms of trade

• A comparative advantage

Country can trade when there is different in ability to produce goods

• True

• False

An opportunity cost can be define as second best alternative that have to let go....

• True

• False

Calculate an opportunity cost according to the principles of comparative advantage: $\frac{\text{Car}}{\text{Aircraft}}=\frac{\text{1500}}{\text{20}}=75$  

• 1 Aircraft and 75 Car

• 75 Aircraft and 1 Car

• 100 Aircraft and 75 Car

• 75 Aircraft and 100 Car

Absolute advantage refers to the ability of a country to produce more efficiently than another country.

• True

• False

International trade refers to the exchange of goods and services within the same country

• True

• False