Absolute and Comparative Advantage Quiz

What is the definition of absolute advantage?

• Ability to produce a good or service with the same cost per unit as another entity

• Ability to produce a good or service with no cost advantage over another entity

• Ability to produce a good or service at a higher cost per unit than another entity

• Ability to produce a good or service at a lower cost per unit than another entity

Explain the concept of absolute advantage with an example.

• Absolute advantage is when a country can produce a good at a higher cost than another country

• Absolute advantage means a country can only produce one type of good

• The concept of absolute advantage refers to a country's ability to produce all goods more efficiently than another country

• The concept of absolute advantage can be explained with the example of a country that can produce a certain good using fewer resources or at a lower cost than another country.

How is absolute advantage different from comparative advantage?

• Absolute advantage is a theory developed by Adam Smith, while comparative advantage is a theory developed by David Ricardo.

• Absolute advantage is based on the total output of a good or service, while comparative advantage is based on the opportunity cost of producing that good or service.

• Comparative advantage

• Absolute advantage is the ability to produce a good using fewer resources than another producer, while comparative advantage is the ability to produce a good at a lower opportunity cost than another producer.

Define comparative advantage in the context of international trade.

• Ability to produce a good or service at a lower opportunity cost

• Ability to produce a good or service without considering opportunity cost

• Ability to produce a good or service at the same opportunity cost

• Ability to produce a good or service at a higher opportunity cost

Provide an example of how a country can benefit from its comparative advantage in trade.

• Specializing in the production of goods and services that it can produce at a lower opportunity cost than other countries, and then trading those goods and services for products that it cannot produce as efficiently.

• Ignoring the concept of comparative advantage and focusing on self-sufficiency

• Producing goods and services at a higher cost than other countries

• Importing all goods and services instead of producing them domestically

In what ways can a country apply its absolute advantage in international trade?

• Specializing in the production of goods and services in which it has the highest productivity and efficiency

• Engaging in trade wars with other countries

• Limiting the export of goods and services

• Imposing high tariffs on imported goods

Explain how comparative advantage leads to mutually beneficial trade between countries.

• Comparative advantage leads to mutually beneficial trade by allowing countries to specialize in the production of goods and services in which they have a comparative advantage, and then trade with other countries for goods and services in which they have a comparative disadvantage.

• Comparative advantage leads to mutually beneficial trade by causing countries to produce only what they need and not engage in trade.

• Comparative advantage leads to mutually beneficial trade by creating competition and trade wars between countries.

• Comparative advantage leads to mutually beneficial trade by allowing countries to produce only what they are best at and not engage in trade.

Describe a real-world scenario where comparative advantage has led to successful trade between two countries.

• The United States and China trading in electronics and manufacturing goods.

• Germany and Japan trading in fashion and textiles

• The United States and China trading in agricultural products

• India and Brazil trading in oil and gas

How does a country's comparative advantage impact its decision to specialize in certain goods for export?

• By specializing in goods that have the highest production cost compared to other countries

• By identifying the goods in which it has the lowest opportunity cost of production compared to other countries.

• By randomly selecting goods to specialize in

• By choosing goods that are in high demand domestically

Discuss the role of comparative advantage in shaping global trade patterns.

• Global trade patterns are solely determined by government regulations

• Comparative advantage influences which goods and services each country specializes in and trades with others.

• Comparative advantage has no impact on global trade patterns

• Comparative advantage only applies to domestic trade, not global trade