Which of the Following Statements Correctly Describes International Trade in Accordance

question 115

Multiple Choice

Which of the following statements correctly describes international trade in accordance with comparative advantage?

• A)Trade is impossible unless there exists a purely competitive market for foreign exchange.
• B)Trade makes all the citizens of the trading countries better off,which is a clear example of a Pareto improvement.
• C)Trade may well make some citizens in each trading country worse off.
• D)Trade requires the judicious application by government of tariffs and quotas in order to discourage production according to comparative disadvantage.
• E)Trade requires that the economies of the trading partners be of roughly equal size (United States versus Andorra just does not work).

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Definitions:

Labor Market

A marketplace where wages are determined, and workers are hired and fired.

Consumer Surplus

The difference in the total cost consumers are prepared and financially able to cover for a good or service, against the total cost they actually cover.

Minimum Price

The lowest possible price at which a product or service can be sold, often set by government regulations to protect producers or consumers.

Market Equilibrium

A situation in which the supply of an item is exactly equal to its demand, leading to a stable market price.