Which of the following statements best describes the theory of comparative advantage?
A)The best way for a nation to ensure full employment is to be totally self-sufficient rather than relying on other nations to obtain goods and services.
B)Each nation should produce those goods that it can produce more efficiently than other nations,and buy the goods it cannot produce efficiently from other nations.
C)The nation that has the largest reserves of gold and other natural resources will enjoy a position of comparative advantage in trade relationships.
D)A nation should produce those goods for which domestic demand is comparatively strong,and should import those goods for which domestic demand is comparatively weak.

Question

Quizplus · Accepted Answer

The theory of comparative advantage suggests that each nation should specialize in the production of goods or services that it can produce more efficiently than other nations, and then trade with other nations to obtain the goods and services it cannot produce as efficiently. This will lead to a more efficient allocation of resources, increased economic output, and an overall improvement in global welfare. Option A suggests that self-sufficiency is the way to ensure full employment, which is not necessarily true. Option C suggests that comparative advantage is based solely on natural resources, which is not necessarily true since a nation may have a comparative advantage in producing goods or services based on other factors such as skilled labor, technology, or infrastructure. Option D suggests that a nation should produce goods based on domestic demand, which is not necessarily true as domestic demand may not reflect the most efficient use of resources.

Which of the Following Statements Best Describes the Theory of Comparative