Video Activity: Another Look at Comparative Advantage

In the Mexico/U.S. example from the video, why was it better to have shirts produced in Mexico? Because producing a shirt in Mexico requires giving up fewer computers than in the U.S. Because producing a shirt in Mexico requires giving up more computers than in the U.S. Because it takes fewer units of labor to produce a computer in the U.S. than in Mexico. Because it takes fewer units of labor to produce a shirt in Mexico than in the U.S.

Because producing a shirt in Mexico requires giving up fewer computers than in the U.S.

What does it mean for Martha Stewart to have a comparative advantage in running Martha Stewart Living Omnimedia (MSO)? Martha Stewart gives up more of some other output when she runs MSO than does anyone else. Martha Stewart is better at running MSO than anyone else. Martha Stewart must also have the comparative advantage in other activities, such as ironing. Martha Stewart can run MSO at a lower opportunity cost than anyone else.

Martha Stewart can run MSO at a lower opportunity cost than anyone else.

Martha Stewart has an absolute advantage in ironing shirts. What does this mean? Martha Stewart irons shirts at a lower opportunity cost than anyone else. Martha Stewart gives up more of some other output when she irons shirts than does anyone else. Martha Stewart is better at ironing shirts than anyone else. Martha Stewart has the absolute disadvantage in other activities, such as running her business.

Martha Stewart is better at ironing shirts than anyone else.

Why doesn't Martha Stewart do all of her own ironing? She has an absolute advantage in ironing. She has an absolute advantage in running her business. She has a comparative advantage in running her business. She has a comparative advantage in ironing.

She has a comparative advantage in running her business.

Which of the following is true about trade? Trade will make all individuals better off while possibly leaving aggregate wealth unchanged. Trade will make all individuals worse off while possibly increasing aggregate wealth. Trade will decrease aggregate wealth while possibly making some individuals better off. Trade will increase aggregate wealth while possibly making some individuals worse off.

Trade will increase aggregate wealth while possibly making some individuals worse off.

What does the theory of comparative advantage help to explain? Which goods should be traded and the terms of trade Whether people should trade and who should trade with whom Why people trade and which goods they should trade Why people trade and where people trade

Why people trade and which goods they should trade

Trade is able to turn: costs into benefits. diversity into isolation. diversity into strength. absolute advantage into comparative advantage.

diversity into strength.

In the Mexico/U.S. example from the video, the opportunity cost of producing computers is measured in: shirts. dollars. computers. units of labor.

shirts.

The theory of comparative advantage says you should specialize in producing what you can produce at: the lowest absolute cost. the greatest opportunity cost. the lowest opportunity cost. the greatest absolute cost.

the lowest opportunity cost.

Trade based on absolute advantage: would not occur in a case where one party can outproduce the other in all goods. only occurs in cases where one party cannot outproduce the other in any goods. can occur in any circumstance, regardless of the relative productivity of the two parties. only occurs in cases where one party can outproduce the other in all goods.

would not occur in a case where one party can outproduce the other in all goods.