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Chapter 20: Q3. (page 430)

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

Which of the following are benefits of international trade?

Choose one or more answers from the choices shown.

  1. A more efficient allocation of resources.

  2. A higher level of material well-being.

  3. Gains from specialization.

  4. Promoting competition.

  5. Deterring monopoly.

  6. Reducing the threat of war.

What central point was Bastiat trying to make in his fictional petition of the candlemakers?
  1. We see quite a bit of international trade in the real world. And trade is driven by specialization. So why don鈥檛 we see full specialization鈥攆or instance, all cars in the world being made in South Korea, or all the mobile phones in the world being made in China? Choose the best answer from among the following choices.

  1. High tariffs.

  2. Extensive import quotas.

  3. Increasing opportunity costs.

  4. Increasing returns.

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鈥檛 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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