The Comparative Advantage Theory Holds That a Country Will Gain

question 46

Multiple Choice

The comparative advantage theory holds that a country will gain from trade ________.

• A)when it exports products for which it has an acquired advantage and imports products for which another country has a natural advantage
• B)if it exports goods it can produce more efficiently than other countries and imports goods other countries can produce more efficiently than it can
• C)even though it can produce all goods more efficiently than other countries
• D)if it exports products using its abundant production factors in exchange for products for which it has scarce production factors

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Definitions:

Factory Overhead

All manufacturing costs that are not directly associated with the cost of raw materials or direct labor, often including costs related to maintaining factory operations.

Direct Materials

Raw materials directly used in the manufacturing process of a product, easily traceable and integral to the finished good.

Direct Labor

The wages and other costs for labor that is directly involved in the manufacturing or production of goods or services.

Operating Income

A measure of a company's profit excluding one-off items and costs not directly related to its core operations, such as interest and taxes.