The Law of Comparative Advantage Explains Why

question 102

Multiple Choice

The law of comparative advantage explains why

• A) specialization and exchange will make it possible for trading partners to expand their combined output.
• B) there will be an inverse relationship between the price of a product and the quantity of it that will be demanded.
• C) larger firms will have lower per unit costs than smaller firms.
• D) an increase in the price of a good will lead to an expansion in the quantity supplied by business firms.

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Definitions:

Nominal Interest Rate

The nominal interest rate represents the rate of interest before adjustments for inflation, indicating the percentage increase in money lenders earn or borrowers pay over a specific period.

Real Interest Rate

The interest rate that has been modified to account for inflation, indicating the actual cost of borrowing or the true earnings from savings.

Inflation Rate

This is the percentage rate at which the general level of prices for goods and services is rising, eroding purchasing power.

Nominal Interest Rate

The percentage increase in money that borrowers pay lenders, not adjusted for inflation.