Author Question: When countries specialize in producing the good in which they have a comparative advantage and then ... (Read 131 times)

Lobcity · **on:** Jun 29, 2018

When countries specialize in producing the good in which they have a comparative advantage and then trade with each other, only the country with the absolute advantage gains.

Is the previous statement correct or incorrect? Briefly explain your answer.

Question 2

In the above figure, if 4000 bicycles are produced per month,

A) marginal benefit is greater than marginal cost.
B) fewer bicycles should be produced to reach the allocatively efficient level of output.
C) the marginal cost of production is 2 bottles of soda per bicycle.
D) Both answers A and B are correct.

phuda · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

The statement is incorrect. Absolute advantage, which is essentially the ability to produce more of a good than another country, has nothing to do with the gains from trade. All nations gain from free international trade regardless of whether they possess an absolute advantage or not.

Answer to Question 2

B