10 Questions
Both nations can benefit by specializing in their absolute advantage good and exchanging part of the output for the commodity of its absolute disadvantage.
True
According to the concept of absolute advantage, a nation should focus on producing goods it is less efficient at.
False
Trade based on absolute advantage can lead to more efficient resource utilization.
True
Adam Smith's theory of absolute advantage suggests that both nations can gain from trade by specializing in their respective areas of strength.
True
In international trade, it is not beneficial for nations to specialize based on their absolute advantage.
False
According to the example given (Wheat (bushels/labor hour) Cloth (yards/labor hour)), the U.S. has an absolute advantage in cloth production over the UK.
False
Specializing in areas of absolute advantage can lead to an increase in the output of both commodities.
True
Adam Smith's theory of absolute advantage emphasizes that nations should only produce goods they have a disadvantage in.
False
The concept of commodity specialization plays a significant role in trade based on absolute advantage.
True
The example provided shows that the UK has an absolute advantage in wheat production over the U.S.
False
Test your knowledge on the theory of trade based on absolute advantage by Adam Smith. Explore the assumptions and concepts such as world resource utilization, world welfare maximization, two-nation two-good world scenario, perfect competition, and more.
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