Question

17.            The trading principle formulated by Adam Smith maintained that

a.             international prices are determined from the demand side of the market.

b.             differences in resource endowments determine comparative advantage.

c.             differences in income levels govern world trade patterns.

d.             absolute cost differences determine the immediate basis for trade.

18.           According to the principle of comparative advantage, specialization and trade increase a nation's total output since

a.             resources are directed to their highest productivity.

b.             the output of the nation's trading partner declines.

c.             the nation can produce outside of its production possibilities frontier.

d.             the problem of unemployment is eliminated.

Answer 1

Answer:-17) Option (D) " absolute cost differences determine the immediate basis for trade " is the correct answer.

The trading principle formulated by Adam Smith maintained that absolute cost differences determine the immediate basis for trade.

Answer:-18) Option (A) " resources are directed to their highest productivity " is the correct answer.

According to the principle of comparative advantage, specialization and trade increase a nation's total output since resources are directed to their highest productivity.