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Author Question: Explain how it is possible for one of two people in a two-good economy to have an absolute advantage ... (Read 24 times)

Beheh

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on: Jul 1, 2018
Explain how it is possible for one of two people in a two-good economy to have an absolute advantage in producing both goods, but trade can still benefit both people.
 
  What will be an ideal response?

Question 2

The production of cigarettes is highly automated; however, a worker is required to monitor each machine. Machines and workers do not interact with one another. Given this information, there are most likely
 
  A) economies of scale.
  B) economies of scope.
  C) constant returns to scale.
  D) increasing returns to scale.
Microeconomics ¦ Perloff ¦ 8th Edition
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nathang24

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Reply #1 on: Jul 1, 2018
Answer to Question 1

One person, when she spends all of her time producing one good or the other, can produce more of either good than the other person. This person has an absolute advantage in producing both goods. However, gains from trade exist when the opportunity costs associated with each good are different for both people. If the costs of producing one good in terms of the forgone production of the other good differ for the two people, then they can gain from trade.

Answer to Question 2

C


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