The Principle of Comparative Advantage Maintains That

question 12

Multiple Choice

The principle of comparative advantage maintains that

• A) instituting trade restrictions, such as nontariff barriers, is an effective way to gain a comparative advantage in certain trade sectors, such as manufactured goods.
• B) a state should specialize in producing those goods it can produce comparatively cheaply and trade them for goods in which others enjoy a comparative advantage.
• C) it is comparatively cheaper to protect new domestic industries than to allow them to be destroyed by competition from more established industries in other states.
• D) because security issues or other "high politics" issues have more public interest, they have a comparative advantage over "low politics" issues when competing for attention from policy makers.
• E) states should encourage trade with nations that have a similar government structure because they would have a comparative advantage in global trade negotiations.

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Definitions:

Hedge Ratio

The ratio of the size of a position in a hedging instrument to the size of the exposure it seeks to hedge.

Call Option

A financial contract giving the buyer the right, but not the obligation, to purchase a stock, bond, commodity, or other asset or instrument at a specified price within a specific time period.

Put Option

This contract permits a person to have the option, without being compelled, to sell a certain amount of a base asset at a fixed price within a designated timeframe.