Question

question 9

According to the theory of international trade,

		A country that specializes and trade may be able to consume at a point outside or above its production possibility curve.
		A country that specializes and trade may be able to consume at a point on its production possibility curve.
		A country that specializes and trade may be able to consume inside or below its production possibility curve.
		A country that specializes and trade will produce less but consume more.

10

Suppose country A has a comparative advantage in the production of a product. This means that:  

		Country A requires fewer resources than another country to produce the product.
		The opportunity cost of producing the product in country A is less than the opportunity cost of producing the product in another country.
		Country A experiences lower marginal rate of transformation for the product
		Country A is a sovereign country.

Answer 1

9 According to the theory of international trade,

A country that specializes and trade may be able to consume at a point on production possibility curve.

Production possibilities curve shows the maximum possible production level of one commodity for any production level of another, given the existing levels of the factors of production and the state of technology. Points outside the production possibilities curve are unattainable with existing resources and technology if trade does not occur with an external producer.

10 Suppose country A has a comparative advantage in the production of a product. This means that:

The opportunity cost of producing the product in country A is less than the opportunity cost of producing the product in another country.

Comparative advantage refers to the ability of a party to produce a particular good or service at a lower marginal and opportunity cost over another. Even if one country is more efficient in the production of all goods (has an absolute advantage in all goods) than another, both countries will still gain by trading with each other.