When Applied to International Economics, the Theory of Comparative Advantage

question 166

Multiple Choice

When applied to international economics, the theory of comparative advantage proposes that total worldwide output will be greatest when:

• A) Each nation's total imports approximately equal its total exports.
• B) Each good is produced by the nation that has the lowest opportunity cost for that good.
• C) Goods that contribute to a nation's balance-of-payments deficit are no longer imported.
• D) International trade is unrestricted and tariffs are not imposed.

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Definitions:

Utility Function

A mathematical representation in economics that defines the level of satisfaction or utility an individual receives from different bundles of goods and services.

Expected Return

The average of the probability distribution of possible returns for an investment, symbolizing its anticipated profitability.

Standard Deviation

A measure of the amount of variation or dispersion of a set of values.

Mean-Variance Criterion

An investment principle where portfolios are selected based on their expected returns (mean) and the variability of those returns (variance), aiming to optimize the trade-off between risk and return.