Your email address will not be published. Comparative Advantage and the Gains from Trade Part 1: Multiple Choice Select the best answer of those given. ... Country A has the comparative advantage in shirts & Country B has the comparative advantage in chairs. 38. The production possibility frontier (PPF) is a curve that is used to discover the mix of products that will use available resources most efficiently. Factors of Production. By using Investopedia, you accept our. Here, the role of opportunity cost is crucial. A comparative advantage gives a company the ability to sell goods and services at a lower price than its competitors and realize stronger sales margins. Understanding Elasticity vs. Inelasticity of Demand, Factors Determining the Demand Elasticity of a Good. Put simply, an opportunity cost is a potential benefit that someone loses out on when selecting a particular option over another. Output Per Hour Of Work Smartphones Fitness Bracelets 9 12 6 5 Switzerland Canada Which Of The Following Statements Is True? A quota or protectionism is a government-imposed trade restriction limiting the number or value of goods a nation imports or exports during a specific time. If a country removes itself from an international trade agreement, if a government imposes tariffs, and so on, it may produce a local benefit in the form of new jobs and industry. The goal of this paper is to assess the empirical performance of Ricardo™s ideas. comparative advantage) of free trade? Economics Mcqs for test Preparation from Basic to Advance. Suppose the attorney produces $175 per hour in legal services and $25 per hour in secretarial duties. 1. What Does the Law of Diminishing Marginal Utility Explain? Ricardo predicted that each country would eventually recognize these facts and stop attempting to make the product that was more costly to generate. As a renowned basketball and baseball star, Michael Jordan is an exceptional athlete whose physical abilities surpass those of most other individuals. A major factor that affects comparative advantage is the country’s quality and quantity of the factors of production. b. Absolute advantage is the ability of an entity to produce a greater quantity of the same good or service with the same constraints than another entity. To see the difference, consider an attorney and their secretary. Absolute Advantage is the ability with which an increased number of goods and services can be produced and that too at a better quality as compared to competitors whereas Comparative Advantage signifies the ability to manufacture goods or services at a relatively lower opportunity cost.. The law of comparative advantage is popularly attributed to English political economist David Ricardo and his book “On the Principles of Political Economy and Taxation” written in 1817, although it is likely that Ricardo's mentor, James Mill, originated the analysis. comparative advantage) of free trade? SURVEY . Countries that implement the CAD strategy promote the development of advanced capital-intensive (heavy) industries that are not consistent with their comparative advantage, which is determined by their factor endowments. A basic economic concept that involves multiple parties participating in the voluntary negotiation. The purpose of this paper is to demonstrate the validity of a weak form of the law of comparative advantage, that is, that the pattern of international trade is determined by comparative advantage. What Is the Utility Function and How Is it Calculated? b. B. relative differences in labor productivity between countries Comparative advantage is determined by differences in the labour hours requires to produce each good. 1. Comparative advantage is determined by comparing the opportunity cost of each good in different countries. For Country A, for every 1 gun that they make they have to give up 2 lbs. Understanding Microeconomics vs. Macroeconomics, Differentiate Between Micro and Macro Economics, Microeconomics vs. Macroeconomics Investments. Comparative advantage is a term associated with 19th Century English economist David Ricardo. Rent seeking occurs when one group organizes and lobbies the government to protect its interests.