The Theory of Comparative Advantage Implies That

question 219

Multiple Choice

The theory of comparative advantage implies that

• A)the United States could have a comparative disadvantage in producing all goods and services.
• B)two countries can have a comparative advantage in production of the same good.
• C)the world gains from trade since it allows production to move to the countries where their opportunity cost is lowest.
• D)the country with the comparative advantage also has an absolute advantage.

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Definitions:

Consumption Bundle

A collection of goods or services that an individual or household consumes within a given period.

Utility Function

A mathematical model in economics that maps a consumer's preferences for various products and services to a numerical representation of utility or satisfaction.

Engel Curve

A graphical representation that shows how household spending on a particular good or service varies with income.

Demand Curve

A graphical representation of the relationship between the price of a good and the quantity demanded, typically downward sloping.