Comparative Advantage Quiz

Who is often attributed with the law of comparative advantage?

• Michael Jordan

• David Ricardo

• James Mill

• Adam Hayes

Answer explanation

The law of comparative advantage is often attributed to David Ricardo, who developed the concept in his book 'Principles of Political Economy and Taxation'.

What is the key to understanding comparative advantage?

• Absolute advantage

• Monetary policy

• Competitive advantage

• Opportunity cost

Answer explanation

The key to understanding comparative advantage is opportunity cost. It refers to the cost of choosing one option over another and is essential in determining which option is more advantageous.

What does comparative advantage refer to in the context of international trade?

• Ability to impose tariffs on imported goods

• Ability to produce more goods than other countries

• Ability to produce goods at a lower opportunity cost

• Ability to provide stronger value to consumers

Answer explanation

Comparative advantage refers to the ability to produce goods at a lower opportunity cost, giving a country a competitive edge in international trade.

What is the difference between comparative advantage and absolute advantage?

• Comparative advantage refers to providing stronger value to consumers, while absolute advantage refers to being the low-cost provider

• Comparative advantage refers to focusing on a particular segment of the consumer pool, while absolute advantage refers to offering superior goods or services

• Comparative advantage refers to producing more goods, while absolute advantage refers to producing goods at a lower cost

• Comparative advantage refers to producing goods at a lower opportunity cost, while absolute advantage refers to producing more or better goods

Answer explanation

Comparative advantage refers to producing goods at a lower opportunity cost, while absolute advantage refers to producing more or better goods

What did David Ricardo show about England and Portugal in relation to comparative advantage?

• Both countries stopped trading with each other

• Both countries focused on producing the same goods

• Both countries benefited by specializing and trading according to their comparative advantages

• Both countries imposed tariffs on each other's goods

Answer explanation

David Ricardo showed that both England and Portugal benefited by specializing and trading according to their comparative advantages.

What is the contemporary example of comparative advantage between China and the United States?

• China has an absolute advantage in specialized, capital-intensive labor

• The United States has a comparative advantage in cheap labor

• The United States has a comparative advantage in producing simple consumer goods at a lower opportunity cost

• China has a comparative advantage in sophisticated goods or investment opportunities

Answer explanation

The United States has a comparative advantage in producing simple consumer goods at a lower opportunity cost.

What is the main reason for the failure of protectionism according to the theory of comparative advantage?

• Rent seeking

• Lack of comparative advantage

• Lack of government intervention

• Global price shocks

Answer explanation

The main reason for the failure of protectionism, according to the theory of comparative advantage, is rent seeking. Rent seeking refers to individuals or groups seeking to gain economic benefits through government intervention, which can lead to inefficiencies and hinder overall economic growth.

What is the potential downside of over-specialization according to the theory of comparative advantage?

• Higher opportunity cost

• Increased productivity

• Vulnerability to global price shocks

• Increased competition

Answer explanation

Over-specialization can lead to vulnerability to global price shocks, which can have negative impacts on the economy.

What is the best trade-off given a comparative advantage?

• The one with the lowest cost of production

• The one with the lowest opportunity cost

• The one with the highest volume or quality

• The one with the highest potential benefit

Answer explanation

The best trade-off given a comparative advantage is the one with the lowest opportunity cost.

What is the role of opportunity cost in determining comparative advantage?

• It has no role in determining comparative advantage

• It is crucial in determining comparative advantage

• It is only relevant in absolute advantage

• It is only relevant in competitive advantage

Answer explanation

Opportunity cost plays a crucial role in determining comparative advantage.