Suppose the World Economy Is Composed of Just Two Countries

question 111

Multiple Choice

Suppose the world economy is composed of just two countries: Italy and Greece. Each can produce steel or chemicals, but at different levels of economic efficiency. The production possibilities curves for the two countries are shown in the graphs below. Refer to the graphs and information above. It can be deduced that:

• A) Greece has a comparative advantage in chemicals
• B) Greece has the absolute advantage in both products
• C) Italy has a comparative advantage in chemicals
• D) It is more costly in terms of resources to produce steel in Italy

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Definitions:

Conversion Cost

The sum of direct labor and overhead costs associated with transforming raw materials into finished goods.

Cooking Department

A segment within a manufacturing or culinary operation where raw materials are prepared, cooked, or processed.

First-In, First-Out Method

An inventory valuation method where the first items placed in inventory are the first ones sold, typically used to manage costs and stock.

Cost Reconciliation Report

A report detailing the reconciliation of budgeted, standard, or estimated costs with actual costs incurred.