Consider Two Countries That Can Produce Wheat and Coffee

question 59

Multiple Choice

Consider two countries that can produce wheat and coffee.The gains from trade when the two countries have different opportunity costs are realized when

• A)production possibility boundaries shift inward.
• B)the two countries continue to produce the same quantities of wheat and coffee.
• C)each country has an absolute advantage in one of the two commodities.
• D)resources are reallocated within the two countries such that each specializes in the production of the good in which it has an absolute advantage.
• E)resources are reallocated within the two countries such that each specializes in the production of the good in which it has a comparative advantage.

---

Definitions:

Economic Profit

The difference between total revenue and total costs, including both explicit and implicit costs, representing the surplus generated beyond the firm’s opportunity costs.

ATC

Average Total Cost; it's the total cost per unit of output, calculated by dividing the total cost by the quantity of output produced.

Variable Cost

Expenses that change in proportion to the production volume.

Economic Profit

The difference between total revenue and total costs, including both explicit and implicit costs, reflecting the true profitability of a business.