Question

Which of the following events would confirm the Theory of Comparative Advantage?

a) A country producing all goods domestically to protect its economy
b) A country exporting goods in which it has a lower opportunity cost
c) A country implementing strict import quotas
d) A country experiencing a trade deficit in all industries

Answer 1

The event that would confirm the Theory of Comparative Advantage is a country exporting goods in which it has a lower opportunity cost.

Step-by-step explanation:

The event that would confirm the Theory of Comparative Advantage is b) A country exporting goods in which it has a lower opportunity cost.

The Theory of Comparative Advantage states that a country should specialize in producing goods that it can produce at a lower opportunity cost than other countries. By exporting these goods, the country can benefit from trade and obtain goods from other countries that it cannot produce as efficiently.

For example, if Country A can produce 1 ton of wheat in the same amount of time it takes to produce 2 tons of rice, and Country B can produce 1 ton of wheat in the same amount of time it takes to produce 1.5 tons of rice, then Country B has a lower opportunity cost of producing wheat. In this case, Country B should specialize in producing wheat and export it to Country A, while importing rice from Country A.

Answer 2

The event that would confirm the Theory of Comparative Advantage is when a country exports goods in which it has a lower opportunity cost.

Step-by-step explanation:

The event that would confirm the Theory of Comparative Advantage is b) A country exporting goods in which it has a lower opportunity cost.

Comparative advantage is the ability of a country to produce goods at a lower opportunity cost compared to other countries. By specializing in and exporting goods in which it has a lower opportunity cost, a country can benefit from trade and increase its overall output and welfare. This is because the country can produce more of the goods it is efficient in and trade them for goods produced by other countries.

For example, if Country A can produce 10 units of Product X or 5 units of Product Y with the same amount of resources, while Country B can produce 8 units of X or 2 units of Y with the same resources, Country B has a lower opportunity cost in producing Product Y. Therefore, if Country B specializes in producing and exporting Product Y, it can benefit from trade with Country A and allocate more resources to produce and export Product Y.