Would a country with an absolute advantage in the production of all goods and services trade with other countries? Explain
What will be an ideal response?
Yes. Trade is based on comparative advantage, not absolute advantage. While it is possible for a country to have an absolute advantage in all goods, it can only have a comparative advantage in one (based on a two good model). When nations specialize in what they have a comparative advantage and then trade with other nations, their production possibilities curves move outward, which yields greater production and consumption possibilities.
You might also like to view...
In the life-cycle hypothesis, people are assumed to have a consumption pattern that leads them to save
A) at no point in their life. B) in the working years up to retirement. C) in their retirement years. D) in every year of their life.
Catherine is risk averse. When faced with a choice between a gamble and a certain level of wealth, she will
A) always prefer the gamble. B) always prefer the certain level of wealth. C) prefer the gamble if the expected utility from it is higher than the utility from the certain level of wealth. D) prefer the certain level of wealth if the expected utility from the gamble is higher than the utility of the certain level of wealth.
An increase in the money supply:
a. lowers the interest rate, causing a decrease in investment and an increase in GDP. b. lowers the interest rate, causing an increase in investment and a decrease in GDP. c. lowers the interest rate, causing an increase in investment and an increase in GDP. d. raises the interest rate, causing an increase in investment and an increase in GDP. e. raises the interest rate, causing a decrease in investment and a decrease in GDP.
If goods A and B are complements, and if the price of good B rises, how will this affect the market equilibrium for good A?
a. Price and quantity will both fall. b. Price will rise and quantity will fall. c. Price and quantity will both rise. d. Price will fall and quantity will rise.