Future Business Leaders of America (FBLA) Business Management Practice Test

Is the statement "Countries with an absolute advantage should always invest in the production and trade of that product" true or false?

1. True

2. False

3. Only under certain conditions

4. Depends on the market demand

The correct answer is: False

The statement is false because having an absolute advantage in producing a product means that a country can produce more of it using the same amount of resources compared to other countries. However, this does not automatically imply that the country should always invest in the production and trade of that product. Countries must also consider other factors such as opportunity costs, market demand, and the potential benefits of specialization and trade. For example, if a country has an absolute advantage in two products but can produce one more efficiently than the other, it might be more beneficial to specialize in the more efficient product and trade for the less efficient one. Furthermore, fluctuating market conditions may affect the viability of investing in certain products. This complexity illustrates why the broader context of the economic environment is crucial in decision-making, rather than solely relying on the concept of absolute advantage.