The First Example of Comparative Advantage Appeared in a Book

question 17

Multiple Choice

The first example of comparative advantage appeared in a book that was published in 1817.This example showed that mutually beneficial trade between two countries (England and Portugal) was possible.The example assumed that two goods (wine and cloth) could be produced by both countries.Which of the following describes the conclusion of this example?

• A)Portugal had a comparative advantage in wine and England had a comparative advantage in cloth.
• B)Portugal had a comparative advantage in both wine and cloth,but its advantage in cloth was greater.
• C)England had a comparative advantage in both wine and cloth,but its advantage in cloth was greater.
• D)England had an absolute advantage in both wine and cloth,but a comparative advantage in wine.

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Definitions:

GIC

A Guaranteed Investment Certificate (GIC) is a type of Canadian investment that offers a guaranteed return over a fixed period.

Monthly Compounded

Interest on an investment or loan is calculated monthly and added to the principal, allowing the interest to earn interest in subsequent months.

Nominal Rate

The stated interest rate of an investment or loan, not accounting for compounding or inflation effects.

Annual Rate

The interest rate for a period of one year, often used to compare the yearly interest between financial products without compounding.