Which one of the following is a true statement? O Trade can be beneficial if eit
ID: 1124157 • Letter: W
Question
Which one of the following is a true statement? O Trade can be beneficial if either a comparative advantage or an absolute advantage exists O Trade can be beneficial if one trading partner has an absolute advantage O Trade can be beneficial it one trading partner has a comparative advantage O Trade can be beneficial if each trading partner has an absolute advantage in producing its export products D Question 2 1 pts A country that has a comparative advantage in producing good X means O import good x O be the higher price seller of good X D Question 3 1 pts The United States tends to have a comparative advantage in the production of goods D Question 4 1 pts Increased levels of U.S imports will result in O all of the following O kakages from the US GDP tank O increased unemployment in the USExplanation / Answer
1. Trade usually occurs between two countries where each country has a comparative advantage (lower opportunity cost) in production of either good(for example- trade of good X and Y is beneficial between country A and B ,if country A has a comparative advantage in production of good X and if country B has a comparative advantage in production of good Y). But trade can also be beneficial if one country has absolute advantage in production of both goods that are to be traded. In this case the domestic exchange ratios in each country should be dissimilar.
So, the answer is trade can be beneficial if either a comparative advantage or an absolute advantage exists.
Answer- option A
2. A country has a comparative advantage in production of good X means opportunity cost of producing one extra unit of good X is lower in this country compared to the opportunity cost of producing one extra unit of good X in another country.
So, while trading with the other country, this country with lower comparative advantage will specialize in production of good X and will export good X.
Answer- option A
3. The united States is rich in both physical capital and human capital. So, united States has comparative advantage in production of capital intensive goods i.e. goods which make highly use of tractor, computers etc.
Answer- option A
5. American car and Japanese cars are substitute for each other. When tariff is imposed on Japanese cars, it means to buy Japanese cars people need to pay more i.e. price of substitute of American cars have increased. So, people will buy less of Japanese cars and more of American cars. Demand for American cars will increase.
Answer-option A
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