Theories of International Trade

Comparative advantage focus on the relative productivity differences, absolute advanatage looks at the absolute productivity

• TRUE

• FALSE

Comparative advantage was developed by David Ricardo.

• TRUE

• FALSE

Resources available = 200 units for each country

Production in Ghana

Cocoa = 10 tons

Rice = 5 tons

Production in South Korea

Cocoa = 2.5 tons

Rice = 10 tons

Question: Which country should specialize in producing Cocoa?

• Ghana

• South Korea

Resources available = 200 units for each country

Production in Ghana

Cocoa = 10 tons

Rice = 5 tons

Production in South Korea

Cocoa = 2.5 tons

Rice = 10 tons

Question: Which country should specialize in producing Rice?

• Ghana

• South Korea

Resources available = 200 units for each country

Production in Ghana

Cocoa = 10 tons

Rice = 5 tons

Production in South Korea

Cocoa = 2.5 tons

Rice = 10 tons

Question: South Korea has the absolute advantage in producing which product?

• Cocoa

• Rice

Resources available = 200 units for each country

Production in Ghana

Cocoa = 10 tons

Rice = 5 tons

Production in South Korea

Cocoa = 2.5 tons

Rice = 10 tons

Question: After specialization, which country will import Cocoa?

• Ghana

• South Korea

Resources available = 200 units for each country

Production in Ghana

Cocoa = 10 tons

Rice = 5 tons

Production in South Korea

Cocoa = 2.5 tons

Rice = 10 tons

Question: After specialization, which country will export Rice?

• Ghana

• South Korea

Which are TRUE about comparative advantage theory?

• Initiated by David Ricardo

• When a country has absolute advantage in more than 1 product, they should not specialize

• When a country has absolute advantage in more than 1 product, they should specialize goods they most efficient

• When a country has absolute advantage in more than 1 product, they should buy goods that they produce less efficiently from other countries

The theory of specializing in what we can do fastest and cheapest is called

• competition

• absolute advantage

• specialization

• comparative advantage

Suppose that in one week Sam can knit 5 sweaters or make 4 blankets and Rob can knit 10 sweaters or make 6 blankets. Which of the following is true?

• Sam has an absolute advantage in making blankets
• Sam has neither a comparative nor an absolute advantage in knitting sweaters or making blankets
• Sam has a comparative advantage in making blankets
• Sam has a comparative advantage in knitting sweaters