Author Question: Is it true that a country needs to have an absolute advantage in the production of a good in order ... (Read 51 times)

erika

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Is it true that a country needs to have an absolute advantage in the production of a good in order to benefit from trade in that good? Explain.
 
  What will be an ideal response?

Question 2

What is meant by long-run competitive equilibrium?
 
  What will be an ideal response?



otokexnaru

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Answer to Question 1

Countries that do not have an absolute advantage in the production of a good can also benefit from trade. Even if a country cannot produce more of a good compared to other countries, it can still gain from the trade of that good as long as it has a comparative advantage in production. Comparative advantage is the ability of an individual, firm, or country to produce a certain good at a lower opportunity cost than other competing producers. So long as opportunity costs are not the same across countries, one country will always have a comparative advantage in producing some goods and the other country other goods.

Answer to Question 2

Long-run competitive equilibrium exists in an industry when price is equal to short-run marginal cost, short-run average cost, and long-run average cost. This implies that firms are earning zero profits.



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