What Should a Country Do If It Has a Comparative

question 22

Multiple Choice

What should a country do if it has a comparative advantage in a product?

• A) It should import that product.
• B) It should export that product.
• C) It should keep the product for domestic use since it is relatively inexpensive to produce.
• D) It should lower the costs of production until realizing an absolute advantage.

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Definitions:

Fixed Expenses

Costs that do not fluctuate with the level of production or sales volume, such as rent and salaries.

Annual Profit

The net income a company earns over a fiscal year, after subtracting all expenses, taxes, and costs from total revenue.

Contribution Margin Ratio

The percentage of each sales dollar remaining after deducting variable costs, used to cover fixed costs and profit.

Margin Of Safety

The difference between actual or expected sales and the break-even point, expressing the level of sales fall that can be tolerated before a loss occurs.