Explanation Option (a): The statement is true. Two countries can achieve gains from trade , even if one of the countries has an absolute advantage in the production of all goods. The only condition necessary for the statement is that each country should have a comparative advantage in some good. Option (b): The statement is false. It is not true that one can have a comparative advantage in everything. Comparative advantage is a relative concept, and hence reflects the opportunity cost of one good or activity in terms of another. So, if one has a comparative advantage in one thing, he or she must have a comparative disadvantage in the other thing. Optionb (c): The statement is false. Trades are typically mutually beneficial, especially if they are based on comparative advantage...

Classifying the statements as true or false.

Principles of Economics, 7th Edition (MindTap Course List)

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ISBN: 9781285165875

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Concept explainers

Comparative Advantage and Absolute Advantage Analysis

The theory of absolute advantage was given by Adam Smith in the year 1776.

Question

Definition Video Definition Ability of a country to produce goods and services at a lower opportunity cost compared to other countries. Here, opportunity cost refers to the forgone units of one good in order to produce one more unit of another good. For example, the opportunity cost of producing good X in country A is 2Y and in country B is 1.25Y. Country B has a lower opportunity cost of producing good X than country A. Therefore, country B has a comparative advantage in the production of good X. Video

Chapter 3, Problem 9PA

To determine

Classifying the statements as true or false.

Expert Solution & Answer

Similar questions

Brazil can produce 100 pounds of beef or 10 autos. In contrast the United States can produce 40 pounds of beef or 30 autos. Which country has the absolute advantage in beef? Which country has the absolute advantage in producing autos? What is the opportunity cost of producing one pound of beef In Brazil? What is the opportunity cost of producing one pound of beef in the United States?
In Japan, one worker can make 5 tons of rubber or 80 radios. In Malaysia, one worker can make 10 tons of rubber or 40 radios. Who has the absolute advantage in the production of rubber or radios? How can you tell? Calculate the opportunity cost of producing 80 additional radios in Japan and in Malaysia. (Your calculation may involve fractions, which is fine,) Which country has a comparative advantage in the production of radios? Calculate the opportunity cost of producing 10 additional tons of rubber in Japan and in Malaysia. Which country has a comparative advantage in producing rubber? In this example, does each country have an absolute advantage and a comparative advantage in the same good? In what product should Japan specialize? In what product should Malaysia specialize?

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