The Principle of Comparative Advantage States That Specialization Increases Productivity,but

question 21

Multiple Choice

The principle of comparative advantage states that specialization increases productivity,but the principle of increasing opportunity costs states that when you increase production of a single good you must use increasingly costly resources.These two principles

• A) are evidence that economic theory is internally inconsistent.
• B) are an example of the difference between abstract models and the real world.
• C) cannot be true at the same time.
• D) together account for the outward bow shape of production possibility curves.
• E) explain the circular flow of incomE.

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Definitions:

Price-leadership Model

A market strategy where one dominating firm sets the price for its product, and other firms in the industry follow suit, often observed in oligopolistic markets.

Dominant Firm

A company that has a large portion of market share in its industry, giving it significant power to influence market conditions and prices.

Economic Incentives

Monetary or other rewards used to motivate individuals or entities to perform certain actions beneficial to economic objectives.

Differentiate

The method of differentiating a product or service to enhance its appeal to a specific target audience.