If a Nation Has an Absolute Advantage in the Production

question 109

Multiple Choice

If a nation has an absolute advantage in the production of a good

• A) it can produce that good at a lower opportunity cost than its trading partner
• B) it can produce the good using fewer resources than its trading partner.
• C) it can benefit by restricting imports of that good.
• D) None of these.

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Definitions:

Variable Inputs

Resources used in production that can vary in quantity in the short run, such as labor and raw materials.

Diminishing Returns

A principle stating that as investment in a particular area increases, the rate of profit from that investment, after a certain point, cannot continue to increase if other inputs remain constant.

Fixed Inputs

Resources used in production that cannot be easily increased or decreased in the short term, such as buildings or machinery.

Variable Inputs

Resources or factors of production whose quantity can be changed in the short term to influence output.