The Theory of Comparative Advantage

question 41

Multiple Choice

The theory of comparative advantage

• A)claims that economic well-being is enhanced if each country's citizens produce only a single product.
• B)claims that economic well-being is enhanced when all countries compare commodity prices after adjusting for exchange rate differences in order to standardize the prices charged all countries.
• C)claims that economic well-being is enhanced if each country's citizens produce that which they have a comparative advantage in producing relative to the citizens of other countries,and then trade production.
• D)claims that no country has an absolute advantage over another country in the production of any good or service.

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Definitions:

Excess Demand

A situation where the quantity demanded of a good or service exceeds its quantity supplied at a particular price.

Rent Ceiling

A regulatory limit on the amount of rent a landlord can charge tenants, often imposed by government to keep housing affordable.

Demand Curve

A graphical representation showing the relationship between the price of a good and the quantity demanded.

Supply Curve

A graph showing the relationship between the price of a good and the amount of the good that suppliers are willing to sell.