Answer to Question #126456 in Economics of Enterprise for Mmm

Question

Q1: Anna’s income increases and as a result, she buys more pizzas. Is pizza an inferior or a normal good? What happens to Anna’s demand curve for pizza?




Q2 : Explain how absolute advantage and comparative advantage differ.

Answer 1

Q1: Pizza in this case is a normal commodity, as its consumption increases with income. The demand curve will shift to the right.

Since the supply is constant, this will lead to an increase in the equilibrium price and the equilibrium quantity in this market.

Q2: The country's economy has an absolute advantage if it produces goods more efficiently. This means that it is beneficial for countries to exchange surplus goods manufactured at minimal cost. The main factors of absolute advantage include the climate and geographic location of the state, the availability of own raw materials, the availability of cheap labor, qualified personnel, advanced technologies, and the availability of free financial resources.

A country has a comparative advantage if it produces goods at lower opportunity costs than other countries. In contrast to the absolute advantage possessed by an insignificant number of countries, any country has comparative advantages when comparing specific goods with the production of the same goods in other countries.