Answer to Question #86454 in Microeconomics for Gloria kabasinga

Question

9. Are the following statements true or false? Explain in each case.
a. “Two countries can achieve gains from trade even if one of the countries has an absolute advantage in the production of all goods.”
b. “Certain very talented people have a comparative advantage in everything they do.”
c. “If a certain trade is good for one person, it can’t be good for the other one.”
d. “If a certain trade is good for one person, it is always good for the other one.”
e. “If trade is good for a country, it must be good for everyone in the country.”

Answer 1

a) True. For the countries to achieve gains from trade even if one has an absolute advantage in the production of all goods all that is required is that each of the nations has a comparative advantage in some good.

b) False. It is impossible for anyone to have a comparative advantage in everything. Comparative advantage reflects the opportunity cost of one good or activity in terms of another. If one has a comparative advantage in one thing, then it is likely that he or she will have a comparative disadvantage in another thing.

c) False. It is not true to argue that if a trade is good for one person, it cannot be good for the other one. Trades can benefit both sides when based on comparative advantage. In cases where both sides do not benefit, a trade would never occur.

d) False. For a trade to be good for both parties, the trade price must be in between the two opportunity costs.

e) False. Sometimes a trade that is good for the country can harm the people in the country.