Briefly explain the principle of comparative advantage.
What will be an ideal response?
POSSIBLE RESPONSE: David Ricardo's principle of comparative advantage shows that beneficial trade can occur even if one country is worse (less productive) at producing all products. The principle of comparative advantage is based on the importance of opportunity cost-the number of units of other products that must be forgone to produce more of a particular product. The principle states that a country will export products that it can produce at low opportunity cost in return for imports of products that it would otherwise produce at high opportunity cost.
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Trade barriers should be removed to promote the welfare of the country. This is a(n)
A) positive statement. B) negative statement. C) inverse statement. D) normative statement.
Consider a monopoly where the inverse demand for its product is given by P = 50 ? 2Q. Total costs for this monopolist are estimated to be C(Q) = 100 + 2Q + Q2. At the profit-maximizing combination of output and price, consumer surplus is:
A. $64. B. $32. C. $128. D. cannot be determined with the given information.