ECONOMICS
TRADE EXCHANGE AND INTERDEPENDENCE
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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comparative advantage
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exchange rates
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high gold value
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excess production
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Detailed explanation-1: -In international trade, the law of comparative advantage is often used to justify globalization, since countries can have higher material outcomes by producing only goods where they have a comparative advantage, and trading those goods with other countries.
Detailed explanation-2: -Comparative advantage is a key principle in international trade and forms the basis of why free trade is beneficial to countries. The theory of comparative advantage shows that even if a country enjoys an absolute advantage in the production of goods, trade can still be beneficial to both trading partners.
Detailed explanation-3: -Absolute advantage refers to the uncontested superiority of a country or business to produce a particular good better. Comparative advantage introduces opportunity cost as a factor for analysis in choosing between different options for production diversification.
Detailed explanation-4: -Most trade occurs because of comparative advantage because both countries need to trade what they lack in order to make up for what they need. Countries trade to specialize in what takes them less worker hours to produce.
Detailed explanation-5: -The theory of comparative advantage explains why countries trade: they have different comparative advantages. It shows that the gains from international trade result from pursuing comparative advantage and producing at a lower opportunity cost.