Which of the following statements best describes the theory of comparative advantage?
A)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.
B)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.
C)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.
D)The nation that has the largest reserves of gold and other natural resources will enjoy a position of comparative advantage in trade relationships.

Question

Quizplus · Accepted Answer

The theory of comparative advantage suggests that each nation should focus on producing goods where it has a lower opportunity cost (can produce more efficiently) compared to other nations and trade with other countries to obtain goods that they are not producing efficiently. This allows for greater specialization, efficiency, and trade between countries, resulting in mutual benefit. Option B is incorrect because producing goods based on domestic demand may not necessarily be efficient or cost-effective. Option C is incorrect because self-sufficiency can actually lead to inefficiencies and higher costs. Option D is incorrect because having natural resources does not necessarily mean a nation has a comparative advantage in producing goods using those resources.

Which of the Following Statements Best Describes the Theory of Comparative