Identify the Truthfulness of the Following Statements

question 25

Multiple Choice

Identify the truthfulness of the following statements.
I. If country A has a comparative advantage over country B in the production of good X, then the opportunity cost of producing good X in country A is lower than in country B.
II. If country A has a comparative advantage over country B in the production of good X, then country A cannot gain from trade with country B.

• A) Both I and II are true.
• B) Both I and II are false.
• C) I is true; II is false.
• D) I is false; II is true.

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Definitions:

Supply and Demand

Fundamental economic model based on the idea that the price and quantity of a good or service is determined by the availability (supply) and desire (demand) of that good or service.

Rationing Mechanism

A system used to allocate scarce goods and services using criteria other than price.

Surplus

An excess of supply over demand, resulting in an accumulation of unsold products or unused resources.

Equilibrium Price

The cost at which the amount of a product or service that consumers want to buy matches the amount that producers are willing to sell, resulting in a balanced market situation.