The Principle of Comparative Advantage Indicates That Mutually Beneficial International

question 86

Multiple Choice

The principle of comparative advantage indicates that mutually beneficial international trade can take place only when:

• A) Tariffs are eliminated
• B) Transportation costs are almost zero
• C) Relative costs of production differ between nations
• D) A country can produce more of some product than other nations can

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Definitions:

Consumer Surplus

The difference between the total amount that consumers are willing to pay and the actual amount they pay for a good or service.

Equilibrium Quantity

The quantity of goods or services that is supplied and demanded at the equilibrium price in a market.

Car Market

The industry related to the manufacturing, selling, and buying of automobiles.

Allocative Efficiency

A state of the economy in which production represents consumer preferences; every good or service is distributed to yield the highest aggregate utility.