When Two Countries Specialize in the Production of Different Goods

question 178

Multiple Choice

When two countries specialize in the production of different goods and trade with each other, it is most likely each country will

• A) export the goods in which it has a comparative advantage.
• B) export the goods in which it has an absolute advantage.
• C) import the goods in which it has a comparative advantage.
• D) import the goods in which it has an absolute advantage.

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Definitions:

Fixed Manufacturing Overhead

Indirect manufacturing costs that remain relatively constant regardless of the level of production, such as rent, insurance, and salaries of permanent staff.

Direct Labor

Labor costs directly attributable to the production of specific goods or services within a company.

Work in Process

Inventory that has begun the manufacturing process but is not yet completed, a state between raw materials and finished goods.

Direct Labor

Workers who are directly involved in the manufacturing of products or provision of services, whose wages are directly tied to the production process.