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Author Question: Critically evaluate the following statement. If a country has an absolute advantage in the ... (Read 94 times)

imowrer

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on: Jun 29, 2018
Critically evaluate the following statement. If a country has an absolute advantage in the production of everything it necessarily follows that it will have a comparative advantage in the production of everything.
 
  What will be an ideal response?

Question 2

Refer to Figure 15-7. Suppose the economy is in a recession and no policy is pursued. Using the static AD-AS model in the figure above, this situation would be depicted as a movement from
 
  A) C to D. B) A to B. C) C to B. D) A to E. E) B to A.


carlsona147

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Reply #1 on: Jun 29, 2018
Answer to Question 1

This is patently false. Absolute advantage only implies that a good can be produced with fewer inputs versus a rival. Comparative advantage means that a good can be produced at lower opportunity cost than a rival. That means that a rival could have an absolute disadvantage in the production of a good or a service and still have a comparative advantage because of its lower opportunity costs.

Answer to Question 2

D


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