General Education Development (GED) Practice Exam

According to economic theories, countries with a comparative advantage in cotton production should do what?

1. Export another product and import cotton

2. Export cotton and import other products

3. Implement tariffs to protect their cotton industry

4. Diversify their economy

The correct answer is: Export cotton and import other products

Countries with a comparative advantage in cotton production are those that can produce cotton at a lower opportunity cost compared to other countries. This advantage allows them to produce cotton more efficiently and competitively. As a result, it is economically beneficial for these countries to export cotton, as they can sell it to other nations that may not be able to produce it as effectively or efficiently. By exporting cotton, these countries can then use the revenue generated from those exports to import other goods and services that they may need, which could be produced more efficiently by other countries. This exchange fosters trade relations and allows both parties to benefit from their respective strengths, increasing overall economic efficiency. The other options suggest actions that deviate from the economic principle of comparative advantage. For instance, implementing tariffs would hinder international trade and potentially raise costs for consumers domestically, while diversifying the economy may not focus on leveraging the existing efficiency in cotton production. Therefore, the strategy of exporting cotton aligns with the basic tenets of comparative advantage and facilitates a more effective global economy.