Explain how the law of comparative advantage benefits developing countries.
What will be an ideal response?
Answer: A country has an advantage in the production of a good when this can be produced at a lower opportunity cost than its trading partner. According to this theory, as long as opportunity costs in two (or more) countries differ, it is possible for all countries to gain from specialisation and trade according to this idea. The global allocation of resources improves, resulting in greater global output and greater global consumption, allowing countries to consume outside their PPC.
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A warranty can help to overcome asymmetric information
Indicate whether the statement is true or false
If an increase in the price of a product from $1 to $2 per unit leads to a decrease in the quantity demanded from 100 to 80 units, then demand is
a. elastic b. inelastic c. of unitary elasticity d. 0 e. inferior