Suppose That Spain Has a Comparative Advantage in Hats and Portugal

question 31

Multiple Choice

Suppose that Spain has a comparative advantage in hats and Portugal has a comparative advantage in doormats. Under a system of free trade, each country specialises and then trades with the other. If the price starts at four hats per doormat, and then increases to five hats per doormat, then:

• A) people in Portugal will not want to buy as many hats.
• B) Spain no longer has a comparative advantage in hats.
• C) Portugal is flooding the market with too many doormats.
• D) some of the gains from trade shift to Portugal.

Apply management theories to practical situations and challenges in organizational settings.

Understand the critique and limitations of management by best-sellers.

Recognize the contribution of various thinkers to quality management and process improvement.

Identify management approaches based on the situation and management theories.

---

Definitions:

Diversification

Reducing risk by investing in several different things, so that the possible losses are independent events.

Pooling

A strong form of diversification in which an investor takes a small share of the risk in many independent events, so the payoff has very little total overall risk.

Risk Reduction

Strategies or actions implemented to minimize the probability or impact of negative events or losses.

Market for Risk

A financial market where individuals and institutions trade financial instruments to manage risk exposure.