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.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

The following hypothetical production possibilities tables are for China and the United States. Assume that before specialization and trade the optimal product mix for China is alternative B and for the United States is alternative U.


China Production Alternatives

Product

A

B

C

D

E

F

Apparel (in thousands)

30

24

18

12

6

0

Chemicals (in tons)

0

6

12

18

24

30


U.S. Production Alternatives

Product

R

S

T

U

V

W

Apparel (in thousands)

10

8

6

4

2

0

Chemicals (in tons)

0

4

8

12

16

20

  1. Are comparative-cost conditions such that the two areas should specialize? If so, what product should each produce?

  2. What is the total gain in apparel and chemical output that would result from such specialization?

  3. What are the limits of the terms of trade? Suppose that the actual terms of trade are 1 unit of apparel for 1½ units of chemicals and that 4 units of apparel are exchanged for 6 units of chemicals. What are the gains from specialization and trade for each nation?

Refer to Figure 3.6, page 57. Assume that the graph depicts the U.S. domestic market for corn. How many bushels of corn, if any, will the United States export or import at a world price of \(1, \)2, \(3, \)4, and \(5? Use this information to construct the U.S. export supply curve and import demand curve for corn. Suppose that the only other corn-producing nation is France, where the domestic price is \)4. Which country will export corn; which county will import it?

Suppose that the opportunity-cost ratio for watches and cheese is 1C ≡ 1W in Switzerland but 1C ≡ 4W in Japan. At which of the following international exchange ratios (terms of trade) will Switzerland and Japan be willing to specialize and engage in trade with each other? Select one or more answers from the choices shown.

  1. 1C ≡ 3W

  2. 1C≡1/2W

  3. 1C ≡ 5W

  4. 1/2C≡1W

  5. 2C ≡ 1W

What central point was Bastiat trying to make in his fictional petition of the candlemakers?

How might protective tariffs reduce both the imports and the exports of the nation that levies tariffs? How might import competition lead to quality improvements and cost reductions by U.S. firms?

See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free