Assume that country A has an absolute advantage in the production of both potatoes and meat, while country B has a comparative advantage in the production of meat. Which country can benefit from the trade if they trade with each other and why？
A. Country A can benefit from the trade because it has an absolute advantage in both goods.
B. Country B can benefit from the trade because it has a comparative advantage in the production of meat.
C. None. Country B does not have an absolute advantage in each of the two goods, so it will not trade with country A.
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Which of the following conditions is the most likely condition for a firm to maximize the profit？
A. Price equals marginal cost.
B. Marginal revenue equals marginal cost.
C. Average revenue equals marginal cost.
In the long run, a firm in a perfectly competitive market will least likely :
A. Earn economic profit.
B. Produce goods at lowest average cost.
C. Experience economies of scale.
China has a large fiscal deficit, but some economists are not worried about the size of the fiscal deficit. Why are they not worried about the size of the fiscal deficit？
A. Money borrowed may have been used for capital investment projects or enhancing human capital. These lead to increase future outputs and tax revenues.
B. Government borrowing may lead to higher interest rate and lower private sector investment.
C. High level of debt to GDP leads to higher tax rates in the search for higher tax revenues, which discourages economic activities in the future.
Which of the following statements most accurately describes the law of diminishing returns？
A. Total product rises when the input increases.
B. Average product will decrease when doubling the number of workers.
C. Marginal product will decrease when doubling the number of workers.
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