IB International Economics - Free trade diagrams +

The ability of one person or nation to produce more of a good than another person or nation

• Comparative Advantage
• Absolute advantage
• exports
• protectionism 

Is there a country who has a absolute advantage in the production of cloth?

• Yes, China.

• Yes, India.

• No

Is there a country who has a absolute advantage in the production of shoes?

• Yes, China.

• Yes, India.

• No

According to the law of comparative advantage, a country should 

• Specialize and export goods with the lowest production cost
• Specialize and export goods with the lowest opportunity cost
• Specialize and export goods with the lowest average cost
• Specialize and export goods with the highest opportunity cost

Is there a country who has a comparative advantage in the production of shoes?

• Yes, China.

• Yes, India.

• No

Based on this table, if these two countries trade with each other, what should each country make?

• South Korea makes all of the TV sets and Japan makes all the cars

• South Korea makes all of the cars and Japan makes all of the TV sets

• South Korea makes all TV sets and Japan gives up 50 TV sets in favor of 25 cars.

• Japan makes all of the cars and South Korea shifts half of its car production to TVs

In the case presented above, should there be a specialization of production?

• Yes. China in shoes. India in clothes.

• Yes, India in shoes. China in clothes.

• No

Based on this table, which statement BEST describes the situation?

• Germany has an absolute advantage in both products, but Greece should still specialize in fish.

• Germany has an absolute advantage in motorcycles, and Greece has an absolute advantage in fish.

• Germany has an comparative advantage in motorcycles, but Greece has an absolute advantage in both products.

• In this particular case, neither side would benefit from specializing more in one of the particular products.

With free trade, prices will ...

• Decrease from PE to P1

• Increase from P1 to PE

• Not change

Agreement that will eliminate all tariffs and other trade barriers between Canada, Mexico, and the US

• NAFTA
• EU
• ASEAN
• CARICOM