Paper 3 · Exchange Rates and International Trade
According to the theory of comparative advantage developed by David Ricardo, a country should specialise in producing and exporting the good for which it has...
Athe highest absolute advantage over every one of its trading partners.
Bthe largest domestic market share among all firms producing that good.
Cthe greatest number of workers already employed in that industry.
Dthe lowest opportunity cost of production, relative to its other goods.
Explanation: Comparative advantage is about relative opportunity cost, not absolute cost: a country gains from specialising in and exporting the good it can produce while giving up the least of its other goods.
Derived from ZIMSEC Economics Paper 3, June 2004, Q9