Quiz on the Law of Comparative Advantage

What economic theory prevailed during the 17th and 18th centuries that emphasized exporting more than importing?

• Mercantilism

• Laissez-faire

• Absolute Advantage

• Comparative Advantage

According to Adam Smith, what is the basis of Absolute Advantage?

• Government control is essential for trade.

• Trade is only beneficial for one nation.

• Countries differ in their ability to produce goods.

• One country can produce all goods more efficiently.

What does the Theory of Comparative Advantage suggest?

• Trade can be beneficial even if one country is less efficient.

• Only one country can benefit from trade.

• All nations should produce everything independently.

• Absolute advantage is the only basis for trade.

What is the primary measure of a nation's wealth according to mercantilism?

• Natural resources

• Stock of precious metals

• Human resources

• Technological advancements

Which of the following is NOT an assumption of Ricardo's Theory of Comparative Advantage?

• Two countries and two commodities

• Constant costs of production

• No government intervention

• Perfect mobility of labor within nations

In the context of trade, what does 'specialization' refer to?

• Producing a variety of goods.

• Focusing on the production of one good.

• Reducing production costs.

• Increasing import tariffs.

What is the opportunity cost of producing one unit of wool in Scotland?

• 0.25 units of coffee beans

• 2 units of coffee beans

• 4 units of coffee beans

• 1 unit of coffee beans

Which country has an absolute advantage in producing coffee beans according to the example given?

• Brazil

• Scotland

• Mexico

• Canada

What is the main criticism of the Ricardian model?

• It overestimates the benefits of trade.

• It does not explain differences in labor productivity.

• It ignores the role of technology.

• It assumes all goods are produced equally.

What does the Production Possibilities Frontier (PPF) illustrate?

• The trade balance between two countries.

• The wealth distribution within a country.

• The maximum output of a single good.

• Alternative combinations of two commodities a nation can produce.