Multiple Choice
Which of the following is a source of increasing returns in the context of comparative advantage?
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9. International Trade
Sources of Comparative Advantage
Multiple Choice
Which of the following statements is true regarding sources of comparative advantage?
A
Transportation costs are the primary source of comparative advantage.
B
Comparative advantage is unrelated to opportunity costs.
C
Comparative advantage only arises when countries have identical factor endowments.
D
Differences in technology between countries can create comparative advantage.
Verified step by step guidance1
Understand the concept of comparative advantage: It refers to the ability of a country to produce a good at a lower opportunity cost than another country.
Recall that opportunity cost is the key to comparative advantage, not transportation costs or identical factor endowments.
Recognize that differences in technology between countries can lower the opportunity cost of producing certain goods, thus creating comparative advantage.
Evaluate each statement by comparing it to the definition and principles of comparative advantage.
Conclude that the statement 'Differences in technology between countries can create comparative advantage' is true because technology affects productivity and opportunity costs.
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