Comparative Advantage Explains Why a Nation Will Benefit from Trade

question 4

Multiple Choice

Comparative advantage explains why a nation will benefit from trade when:

• A) it exports more than it imports.
• B) its trading partners are experiencing offsetting losses.
• C) it exports goods for which it is a high-opportunity cost producer, while importing those for which it is a low-opportunity cost producer.
• D) it exports goods for which it is a low-opportunity cost producer, while importing those for which it is a high-opportunity cost producer.

---

Definitions:

Average Variable Cost

is the cost that varies with the level of output, calculated by dividing the total variable costs by the quantity of output produced.

Diminishing Returns

A rule that asserts when one input in the production process is augmented without changes to the others, there will ultimately be a decline in output after reaching a specific level.

Average Fixed Cost

The cost per unit that remains constant regardless of the level of production or output.

Output

The total amount of goods or services produced by a company or economy.