Answer to Question #328682 in Macroeconomics for Isay

Question

 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 talented people have a comparative advantage in everything they do. c. If a certain trade is good for one person, it cant 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

explanation: Two countries can achieve gains from trade even if one of the countries has an absolute advantage in the production of all goods. All that is necessary is that each country have a comparative advantage in some good.

b. false

explanation: No one can have a comparative advantage in everything. Comparative advantage reflects the opportunity cost of one good or activity in terms of another. If you have a comparative advantage in one thing, you must have a comparative disadvantage something else.

c. false

It is not true that if a trade is good for one person, it cannot be good for the other one. Trades can and do benefit both sides when based on comparative advantage. If both sides did not benefit, trades would never occur.

d. false

explanation: To benefit both parties, the trade price must lie between the two opportunity costs.

e. false

explanation: Trade that makes the country better off can harm certain individuals in the country. For example, suppose a country has a comparative advantage in producing wheat and a comparative disadvantage in producing cars. Exporting wheat and importing cars will benefit the nation as a whole, as it will be able to consume more of both goods. However, the introduction of trade will likely be harmful to domestic auto workers and manufacturers.