When a Country Has a Comparative Advantage in Producing a Certain

question 3

Multiple Choice

When a country has a comparative advantage in producing a certain good,

• A)the country should import that good.
• B)the country should produce just enough of that good for its own consumption.
• C)the country's opportunity cost of that good is high relative to other countries' opportunity costs of that same good.
• D)None of the above is correct.

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Definitions:

Perfect Complements

Goods that are always consumed together in fixed proportions, where the utility derived from one good enhances the utility derived from the other.

Income Effect

The impact on an individual's or economy's purchasing power from an increase or decrease in income, which subsequently affects the quantity demanded for goods and services.

Substitution Effect

The change in consumption that occurs when a price change for one good causes a consumer to replace that good with a more or less expensive substitute.

Price Change

An alteration in the cost of goods or services in the market.