With regard to international trade,
A)The production possibilities exceed the consumption possibilities.
B)Rich countries benefit at the expense of poor countries.
C)The market mechanism determines the terms of trade.
D)Some countries do not have a comparative advantage in producing anything.

Question

Quizplus · Accepted Answer

In international trade, the terms of trade are determined by the market mechanism, where supply and demand establish the price at which goods and services are exchanged between countries. This means that countries can benefit from trading with each other based on their respective comparative advantages, which create gains from specialization, efficiency, and productivity. While there are issues related to unequal distribution of benefits and costs, protectionism, and sustainability, the overall trend in international trade is towards liberalization, globalization, and interdependence. Therefore, the statement that rich countries benefit at the expense of poor countries (B) is not accurate, as both rich and poor countries can gain from trade, depending on their ability to compete and cooperate in a level playing field. Similarly, the statement that some countries do not have a comparative advantage in producing anything (D) is not empirically supported, as all countries have some resources, skills, or assets that can be traded or transformed into comparative advantages, even if they are not equally distributed or developed. Finally, the statement that the production possibilities exceed the consumption possibilities (A) is theoretically valid, as there are limits to how much a country can consume based on its production capacity, but this does not affect the potential benefits of trade, which can expand the range and quality of goods and services available to consumers.

With Regard to International Trade