How can a nation that is at an absolute disadvantage gain from trade?
What will be an ideal response?
Being at an absolute disadvantage means that the nation can produce less than its trading partner, but it says nothing about the relative costs of producing the goods. International trade is based on comparative advantage, which means that the low-cost producer specializes in the production of a good and exports it to the other nation that has the higher cost of production. A nation that has an absolute disadvantage still has a lower opportunity cost of production for one of the goods and hence has the comparative advantage in the production of that good. Therefore this country will gain from trade, as will all its trading partners.
You might also like to view...
When one firm sells a good or service that has no close substitutes and a barrier blocks the entry of new firms, what type of market is this?
A) perfect competition B) only monopoly C) oligopoly D) only monopolistic competition E) either monopoly or monopolistic competition
Which of the following Federal Reserve chairs had the longest tenure?
a. Alan Greenspan. b. Paul Volcker. c. Milton Friedman. d. Arthur Laffer.
Stagflation
a. is caused by a negative demand shock b. is theoretically impossible c. is a long-run phenomenon d. was rampant during the Great Depression e. is the combination of rising price levels and negative GDP growth
Total revenue is:
A. the amount that an individual gets paid over a specified period of time, typically annually. B. the quantity sold multiplied by the price paid for each unit. C. the amount that a firm spends on all inputs that go into producing a good or service. D. the quantity produced multiplied by the cost of producing each unit.