Bachelor of General Studies (BGS) Degree Practice Exam

According to the theory of comparative advantage, what happens when countries produce goods they have a natural talent for?

1. Trade becomes more complex

2. Productivity rises more quickly

3. National economies begin to stagnate

4. Goods produced are of lower quality

The correct answer is: Productivity rises more quickly

The theory of comparative advantage suggests that when countries specialize in producing goods and services for which they have a natural talent or lower opportunity cost, overall productivity increases. This specialization allows countries to use their resources more efficiently, leading to higher levels of output and productivity compared to if they attempted to produce a wide variety of goods without focusing on their strengths. As nations focus on their areas of expertise, they are able to produce more of those goods at a lower cost, which can also facilitate more efficient trade between countries. This boosts economic productivity, as countries can export their specialized goods and import those that they are less adept at producing, effectively enhancing their economic growth and efficiency. In this context, the other options do not align with the principles of comparative advantage. Trade is generally viewed as becoming simpler through comparative advantage rather than more complex, national economies should flourish rather than stagnate when specializing, and the quality of goods produced typically improves with specialization, rather than declining. Hence, the correct response to the effects of countries producing goods they have a natural talent for is that productivity rises more quickly.