Wider gaps in opportunity costs allow for higher levels of value production by organizing labor more efficiently. According to the theory of comparative advantage, which of the following is not a reason why countries trade? These goods are homogeneous, meaning that consumers and producers cannot differentiate between shoes from Mexico and shoes from the U.S.; nor can they differentiate between Mexican or American refrigerators.From Table 1, we can see that it takes four U.S. workers to produce 1,000 pairs of shoes, but it takes five Mexican workers to do so. ... What matters is comparative advantage. A contemporary example: China’s comparative advantage with the United States is in the form of cheap labor. The goal of this paper is to assess the empirical performance of Ricardo™s ideas. It is also a foundational principle in the theory of international trade. The best trade would be for Michael Jordan to film a television commercial and pay Joe to paint his house. 11th - 12th grade. For Country A, for every 1 gun that they make they have to give up 2 lbs. Winter Term 2014 Comparative Advantage Study Questions (with Answers) Page 3 of 6 (8) 6. Which of the following statements is a fair comparison of the Heckscher-Ohlin theory and the Ricardo theory (i.e. Comparative advantage. (One should not compare the monetary costs of production or even the resource costs (labor needed per unit of output) of production. People learn their comparative advantages through wages. Question: Using The Numbers In The Table, Determine Which Country Has A Comparative Advantage In Producing Each Product. here you will find the the Baisc to Advance and most Important Economics Mcqs for your test preparation. Foreign demand will tend to drive up (down) the autarky price of a country's comparative advantage (disadvantage) good, raising short term profits and attracting resources to that industry. In the case of comparative advantage, the opportunity cost (that is to say, the potential benefit which has been forfeited) for one company is lower than that of another. When there is free trade, why do some countries remain poor at the expense of others? Comparative Advantage can be defined as a firm’s or the organization’s comparative advantage that is its ability to produce service or goods when compared to another firm or entity at a lower cost of opportunity. SURVEY . What Is the Concept of Utility in Microeconomics? It is also one of the most commonly misunderstood principles. Required fields are marked *. the following production points, decide whether that ... about how trade is determined by comparative advantage, answer the following questions. These resources come from the import competing comparative disadvantage sector. The Opportunity Cost For Switzerland To Produce One Smartphone Is 0.75 Fitness Bracelet, B. b. Owing to their diversity of skills, Michael Jordan and Joe would likely find this to be the best arrangement for their mutual benefit. In economics, absolute advantage refers to the superior production capabilities of an entity while comparative advantage is based on the analysis of opportunity cost. Economics Mcqs for test Preparation from Basic to Advance. Competitive Advantage, Comparative Advantage in International Trade, Government Imposed Quota Can Limit Imports and Exports, What the Production Possibility Frontier (PPF) Curve Shows, Competitive Advantage: What Gives Companies an Edge, Economists' Assumptions in their Economic Models, Understanding Positive vs. Normative Economics. 2. Put simply, an opportunity cost is a potential benefit that someone loses out on when selecting a particular option over another. Is Demand or Supply More Important to the Economy? What Factors Influence a Change in Demand Elasticity? Hypothetically, say that Michael Jordan could paint his house in eight hours. By using Investopedia, you accept our. Explain when a country has a comparative advantage over another country. Tags: Question 6 . Tags: Question 6 . Comparative advantage is determined by ? b. Comparative Advantage and the Gains from Trade Part 1: Multiple Choice Select the best answer of those given. What Does the Law of Diminishing Marginal Utility Explain? Comparative advantage is contrasted with absolute advantage. Comparative advantage is an economy's ability to produce a particular good or service at a lower opportunity cost than its trading partners. For example, the natural availability of mineral resources like iron, gold, and copper is not something a country can change. Inelasticity of Demand, factors Determining the Demand Elasticity of a good advantage is an economy ability. Produce sophisticated goods or services better or more cheaply than its trading partners suppose the produces. 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