E.46: Absolute and Comparative Advantage

What does absolute advantage refer to?

• A situation where a country has better technology than another country

• A situation where a country imports more than it exports

• A situation where a country can produce a good at a lower opportunity cost

• A situation where a country can produce a good with fewer resources than another country

If Country A can produce 100 cars with 10 workers and Country B can produce 80 cars with the same number of workers, which country has an absolute advantage?

• Country B

• Country A

• Both countries

• Neither country

What is opportunity cost?

• The cost of producing goods

• The value of the next best alternative foregone when a choice is made

• The total cost of resources used in production

• The cost of labor and materials

What does comparative advantage focus on?

• Overall production efficiencies

• Relative production efficiencies and opportunity costs

• The ability to export more than import

• The ability to produce more goods overall

Why does most trade occur according to the text?

• Because of historical agreements

• Because of comparative advantage

• Because of absolute advantage

• Because of financial benefits only

What can a country do if it has a comparative advantage in producing a certain good?

• Import this good

• Increase the price of this good

• Export this good

• Stop producing this good

What is the role of comparative advantage in trade?

• To maximize total output and efficiency

• To increase dependency on imports

• To reduce the variety of goods available

• To decrease economic welfare

If Country A has a comparative advantage in cars and Country B in computers, what should Country A specialize in?

• Cars

• Neither cars nor computers

• Computers

• Both cars and computers