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True or False. If Country B has an absolute advantage over Country A in producing bicycles, it will also have a comparative advantage over Country A in producing bicycles.

Short Answer

Expert verified

The statement is False.

Step by step solution

01

Step 1. Absolute advantage and comparative advantage

The absolute advantage states the country can produce the product more efficiently than the competitor country as it uses fewer resources to produce the same amount of goods.

The comparative advantage says that the country can produce at a lower opportunity cost than the competitor country.

02

Step 2. Explanation

If a country produces a commodity more efficiently, it doesn't need to produce the good at a lower opportunity cost.

Suppose country B has an absolute advantage over country A in making bicycles, which means the input requirement is less and the output is more. It is unnecessary to have a comparative advantage over Country A as the cost of production in countries A and B may differ. Country B can produce more bicycles than country A. However, it can have a higher cost of production than country A because the cost of labour is more in country B. Hence, comparative advantage is not possible. Thus, the statement is false.

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Most popular questions from this chapter

In Country A, the production of 1 bicycle requires using resources that could otherwise be used to produce 11 lamps. In Country B, the production of 1 bicycle requires using resources that could otherwise be used to produce 15 lamps. Which country has a comparative advantage in making bicycles?

  1. Country A

  2. Country B

Assume that the comparative-cost ratios of two products—baby formula and tuna fish—are as follows in the nations of Canswicki and Tunata:

Canswicki: 1 can baby formula ≡ 2 cans tuna fish

Tunata: 1 can baby formula ≡ 4 cans tuna fish

In what product should each nation specialize? Which of the following terms of trade would be acceptable to both nations: (a) 1 can baby formula ≡ 2 1/2 cans tuna fish; (b) 1 can baby formula ≡ 1 can tuna fish; (c) 1 can baby formula ≡ 5 cans tuna fish?

Suppose that the opportunity-cost ratio for sugar and almonds is 4S ≡ 1A in Hawaii but 1S ≡ 2A in California. Which state has the comparative advantage in producing almonds?

  1. Hawaii

  2. California

  3. Neither

In 2018, manufacturing workers in the United States earned average compensation of \(21.86 per hour. That same year, manufacturing workers in Mexico earned average compensation of \)3.20 per hour. How can U.S. manufacturers possibly compete? Why isn’t all manufacturing done in Mexico and other low-wage countries?

Identify and state the significance of each of the following trade-related entities: (a) the WTO; (b) the EU; (c) the Euro Zone; and (d) NAFTA.

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