Comparative Advantage

The role of comparative advantage in trade is to:

• allow countries to specialize in producing goods they can produce most efficiently

• encourage countries to produce all goods domestically

• reduce the need for international trade

• increase the cost of goods

Countries trade with each other because:

• they want to exchange cultural values.

• they have different resources and needs.

• they want to compete with each other.

• they want to increase their population.

Why do countries trade with each other? Generally, because one country has something the other country wants. Maybe the people in Country A really want oranges, but oranges can’t be grown in Country A. So, they buy some from Country B. On the other hand, you can’t grow apples in Country B. So they buy apples from Country A, where apples grow perfectly.

• Countries trade because they have different resources and needs.

• Countries trade to increase their population.

• Countries trade to reduce their land size.

• Countries trade to change their climate.

What might the US do if China could produce goods much cheaper than the US could?

• Impose tariffs on Chinese goods

• Increase domestic production

• Ignore the price difference

• Subsidize US companies

What might the US do if China could produce goods much cheaper than the US could? Why?

• Impose tariffs on Chinese goods

• Increase domestic production

• Ignore the price difference

• Subsidize US companies

Countries trade to obtain goods they can't produce because:

• they want to increase their wealth.

• they lack the resources or technology to produce them.

• they want to establish diplomatic relations.

• they want to reduce their population.

How does trading create jobs? If US companies only produce enough products for the US, they will need few workers. If they sell to other countries, they would likely need more workers.

• Trading allows companies to expand their market, leading to increased production and more jobs.

• Trading reduces the need for workers as companies focus on efficiency.

• Trading has no impact on job creation as it only affects product distribution.

• Trading only benefits foreign workers, not domestic employment.

Trading increases profits because:

• it reduces costs.

• it increases market reach.

• it enhances product quality.

• it diversifies investment.

What is comparative advantage?

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Explain the example of comparative advantage given in the text.

• The example illustrates how one country can produce a good at a lower opportunity cost than another.

• The example shows how countries can benefit from absolute advantage.

• The example describes the process of achieving economic equilibrium.

• The example highlights the importance of trade barriers.