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The Comparative Advantage Quiz

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Questions and Answers

According to David Ricardo's model, which of the following is true about countries' trade and comparative advantage?

Countries should export goods in which they are relatively efficient, even if they do not have an absolute advantage in production. (correct)

Countries should export goods in which they have the highest productivity of labor.

Countries should not engage in trade if they do not have an absolute advantage in the production of goods.

Countries should only export goods in which they have an absolute advantage in production.

What is the key implication of David Ricardo's theory of comparative advantage?

Countries should engage in trade even if they do not have an absolute advantage in the production of goods. (correct)

Countries should not engage in trade if they have a lower productivity of labor.

Countries should only engage in trade if they have an absolute advantage in the production of goods.

Countries should focus on producing goods with the highest absolute advantage.

What determines whether a country should export a good according to David Ricardo's model of comparative advantage?

Size of the market for the goods

Relative efficiency in production compared to other goods (correct)

Absolute efficiency in production compared to other countries

Labor productivity compared to other countries

In David Ricardo's model, what is the basis for a country to decide whether to export a good or not?

Comparative advantage based on opportunity costs Signup and view all the answers

According to David Ricardo's model, why should England export cloth to Portugal and import wine?

England has a comparative advantage in cloth production compared to Portugal Signup and view all the answers

According to David Ricardo's model, what determines whether a country should export a good?

The country's relative efficiency in producing the good compared to others Signup and view all the answers

What concept is the comparative advantage theory related to?

Opportunity costs Signup and view all the answers

According to David Ricardo's model, why should a country trade even if it lacks absolute advantage in the production of goods?

It may still have a comparative advantage in certain goods Signup and view all the answers

In David Ricardo's model, what should a country do if it is relatively efficient at producing a certain good?

Export it Signup and view all the answers

What is the basis for a country to decide whether to export a good according to David Ricardo's model of comparative advantage?

Relative efficiency in producing the good Signup and view all the answers

Study Notes

Comparative Advantage

According to David Ricardo's model, countries should specialize in producing goods for which they have a comparative advantage, even if they do not have an absolute advantage.
The key implication of David Ricardo's theory of comparative advantage is that countries should trade with each other, even if one country is more efficient at producing all goods.
A country should export a good if it is relatively more efficient at producing that good compared to its trading partner.
The basis for a country to decide whether to export a good is its relative efficiency in producing that good compared to its trading partner.
According to Ricardo's model, England should export cloth to Portugal and import wine because England is relatively more efficient at producing cloth, while Portugal is relatively more efficient at producing wine.
Whether a country should export a good is determined by its comparative advantage in producing that good.
The comparative advantage theory is related to the concept of gains from trade.
A country should trade even if it lacks absolute advantage in the production of goods because it can still benefit from comparative advantage.
If a country is relatively efficient at producing a certain good, it should specialize in producing that good and export it.

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Description

Test your knowledge of the comparative advantage argument for free trade and its consequences with this quiz. Learn about David Ricardo's model and the concept of countries trading to profit from their comparative advantages. Gain insights into the productivity of labor and the principles behind international trade.