Classical theories of International Trade

Theory of comparative advantage was given by ______

• A. Philip Kotler

• B. Adam Smith

• C. Peter Drucker

• D. David Ricardo

Theory of absolute advantage was given by ______

• A. Philip Kotler

• B. Adam Smith

• C. Peter Drucker

• D. David Ricardo

Who has the COMPARATIVE ADVANTAGE in making bracelets?

• A. Marie

• B. Isabella

When determining comparative advantage one must determine

• Opportunity cost

• Specialization

• Absolute Advantage

• Embargos 

If I am better at all types of production, I have the ______ in all forms of production.

• Comparative advanatage

• Specialization

• Absolute Advantage

• Developed nation

_________ stresses on the ‘relative cost difference’ rather than ‘absolute cost difference’ between the goods as the basis for carrying out trade.

• A. Theory of absolute advantage

• B. Theory of comparative advantage

• C. Hecksher Ohlin Theory

• D. Theory of mercantilism

________ advocates that a country should focus and specialize in the production of goods that it can produce relatively at a lower cost than other countries.

• A. Theory of absolute advantage

• B. Theory of comparative advantage

• C. Hecksher Ohlin Theory

• D. Theory of mercantilism

The theory of 'absolute advantage':

• Best describes a situation where there are two countries, A and B, and potentially two goods which can be traded, X and Y. A is absolutely better at producing X and B is absolutely better at producing Y, and so if A specializes in producing X and B in Y, and they trade together, then both countries will gain.

• Best describes the global strategy of businesses who always seek to gain an absolute advantage over their rivals.

• Explains why developed countries have a competitive advantage over poorer countries

• Best describes a situation where there are two countries, A and B, and potentially two goods which can be traded, X and Y. If A was absolutely better at producing both X and Y compared to B then there would be no advantage in A trading with B.

Assume that there are two countries, A and B, and that they can both produce two goods, X and Y. The theory of comparative advantage predicts that:

• Trade can only take place if country A has an absolute advantage in producing one of the goods, and country B has an absolute advantage in producing the other.

• Trade can take place even if country A has an absolute advantage in both providing that B chooses to specialize in the good in which it has the least comparative disadvantage, and A specializes in the one in which it has the greater comparative advantage

• Trade between A and B will only take place if both countries are at a comparatively similar stage in the development of their economies

• None of the above.

Who has the ABSOLUTE advantage in making bracelets?

• Marie

• Isabella