When Comparative Advantage Is Based on Transferable Factors, the Law

question 29

Multiple Choice

When comparative advantage is based on transferable factors, the law of one price tends to:

• A) erode the advantage away.
• B) amplify the advantage.
• C) stabilize the advantage.
• D) make the advantage into an inherent comparative advantage.

---

Definitions:

Marginal Product

The additional output that results from the use of one more unit of a variable input, assuming all other inputs remain constant, often reflecting the efficiency of the input.

Fringe Benefits

Additional benefits offered to employees on top of their salaries, such as health insurance, retirement plans, and paid vacation.

Labor Market

The supply and demand for labor, where employees provide the labor, and employers provide the jobs.

Equilibrium

A condition where the supply and demand in the market are equal, leading to stable prices.