The Theory of Comparative Advantage Is

question 179

Multiple Choice

The theory of comparative advantage is:

• A) rarely relevant for identifying whether gains from trade can be obtained.
• B) always relevant for identifying whether gains from trade can be obtained.
• C) not true for nations, though it may be true for individuals.
• D) true for nations, but it is not true for business or individuals.

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Definitions:

Natural-Monopoly Situation

A market condition in which a single firm can produce output at a lower cost than can multiple firms, leading to a monopoly justified by efficiencies of scale.

Implicit Costs

The opportunity costs that arise from using resources that a business already owns rather than earning revenue from those resources elsewhere.

Explicit Costs

Direct, out-of-pocket expenses incurred in conducting a business activity, such as wages, rent, and materials.

Economic Profits

Profits earned by a company after accounting for both explicit (direct) and implicit (opportunity) costs.