Question

The Republic of South Africa exports edible fruits and nuts into the common market known as the European Union, and imports from the European Union other products which South Africa could produce but at a higher cost than what it costs the Europeans to produce. This practice follows the premise of _________________.
A) The Theory of Malthus
B) The Theory of Competitive Positioning
C) The Theory of Comparative Advantage
D) The Theory of Absolute Advantage

Answer 1

Answer:

C) The theory of Comparative Advantage

Explanation:

The theory of Comparative Advantage is a theory of international trade and it comes into effect in a situation where the opportunity cost of producing a good or offering by a service by a country is lower than that of other countries.

Specifically, to understand the theory of comparative advantage the opportunity cost of production or offering a service has to be measured in terms of the trade off between those countries. It simply means when a country has the comparative advantage then it derives more benefits from other countries buying its products as compared to buying their products and vice versa.

In the question, the European Union has the Comparative advantage over South Africa because the trade-off between buying South Africa's edible fruits and nuts and selling other products to South Africa benefits the European countries.

European countries derive more benefits because South Africa buys their goods at a cost higher than it takes them to produce while they buy at the normal cost from South Africa. The trade-off benefits Europe