Level 6 Review Comparative and Absolute Advantage and Int. Trade

Assume that there are only two countries, Country A and Country B, producing only two goods, corn cereal and designer jeans. The table here shows the production possibilities for these two countries. Which of the following statements is correct?

• 1. Country A has an absolute advantage in the production of both goods.

• 1. Country B has an absolute advantage in both goods.

• 1. Country A has an absolute advantage in one good, but not both.

• 1. Country B has an absolute advantage in one good, but not both.

Why do nations trade?

• so they can specialize

• because they believe that the products they receive are worth more than the products they give up

• because they need to acquire certain raw materials

• all of the above

Which of the following statements best describes trade between two nations?

• It is mutually beneficial.

• It avoids specialization

• It is legally required.

• It involves low cost for both nations.

A farmer can grow wheat or corn. She grows corn because it will make more money than wheat. The value of the wheat crop she chose not to grow could best be described as _______ .

• a comparative advantage

• a comparative disadvantage

• an opportunity cost

• all of the above

The goods and services that a nation buys from other nations are called  (a)    .

(a)   advantage is a country’s ability to produce more of a given product than can another country.

(a)    advantage is a country’s ability to produce a given product relatively more efficiently than another country