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Chapter 19: Q 11. (page 461)

Is it possible to have a comparative advantage in

the production of a good but not to have an absolute advantage? Explain.

Short Answer

Expert verified

Yes, it is possible to have a comparative advantage in the production of a good but not to have an absolute advantage.

Step by step solution

01

Step 1. Definition

The ability to produces a good with a smaller quantity of inputs, or to produce more output per unit of input is referred to as absolute advantage.

The ability to produce a good or service at a lower opportunity cost is known as comparative advantage.

02

Step 2. Explanation

Absolute advantage means using minimum resources to produce the good. Comparative means incurring opportunity cost to produce the good.

A person may incur minum opportunity cost but does not necessarily can also produce using minimum resources.

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Most popular questions from this chapter

Why might a low-income country put up barriers

to trade, such as tariffs on imports?

In Japan, one worker can make 5 tons of rubber or 80 radios. In Malaysia, one worker can make 10 tons of rubber or 40 radios.

a. Who has the absolute advantage in the production of rubber or radios? How can you tell?

b. Calculate the opportunity cost of producing 80 additional radios in Japan and in Malaysia. (Your calculation may involve fractions, which is fine.) Which country has a comparative advantage in the production of radios?

c. Calculate the opportunity cost of producing 10 additional tons of rubber in Japan and in Malaysia. Which country has a comparative advantage in producing rubber?

d. In this example, does each country have an absolute advantage and a comparative advantage in the same good?

e. In what product should Japan specialize? In what product should Malaysia specialize?

Can a nation’s comparative advantage change over

time? What factors would make it change?

How does comparative advantage lead to gains

from trade?

Consider two countries: South Korea and Taiwan. Taiwan can produce one million mobile phones per day at the cost of \(10 per phone and South Korea can produce 50 million mobile phones at \)5 per phone. Assume these phones are the same type and quality and there is only one price. What is the minimum price at which both countries will engage in trade?
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