Principles of Microeconomics
Principles of Microeconomics
Are the following statements true or false? Explain in each case.
a. “Two countries can achieve gains from trade even if one of the countries has an absolute advantage in the production of all goods.”
b. “Certain talented people have a comparative advantage in everything they do.”
c. “1f a certain trade is good for one person, it can’t be good for the other one.”
d. “If a certain trade is good for one person, it is always good for the other one.”
e. “If trade is good for a country, it must be good for everyone in the country.”
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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...
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