If Country a Can Produce Computers More Efficiently Than Cars

question 31

Multiple Choice

If country A can produce computers more efficiently than cars relative to country B, then trade theory tells us that

• A)the two countries should trade only if country B has an absolute advantage in car production.
• B)country B will only gain from trade if it has an absolute advantage in car production.
• C)country B must have an absolute advantage in car production.
• D)both can gain from trade regardless of who has the absolute advantage in car production.
• E)country A should not trade with country B.

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Definitions:

Standard Deviation

A statistical measure of the dispersion of returns for a given security or market index.

Risk Premium

Risk premium is the additional return an investor demands for holding a risky asset over a risk-free asset, compensating for the higher uncertainty.

Risk Premium

The extra return demanded by investors for taking on additional risk above the risk-free rate of return.

Asset Return

The income that an asset produces for its investor, measured as a percentage of the asset's purchase price.