Question:
According to the principle of comparative advantage, worldwide output and consumption levels will be highest when goods are produced in countries where which of the following is true?
(1) Opportunity costs are lowest
(2) Absolute advantages are highest
(3) The balance of trade is in a surplus
(4) The exchange rate is falling
(5) Transportation costs are almost zero
Correct Answer:
(1)
Answer Explanation:
The core of David Ricardo’s theory of comparative advantage is that global efficiency and total output are maximized when each nation specializes in producing the goods for which it has the lowest domestic opportunity cost relative to its trading partners.
Topic: International Trade Year: 2020
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