Classify the statements as true or false by dragging them into the appropriate b
ID: 1133992 • Letter: C
Question
Classify the statements as true or false by dragging them into the appropriate box. True False Absolute advantage is the source of the potential gains from specialization and trade. Countries specialize in the production of goods for which they have a comparative advantage. It can be mutually beneficial for two nations to specialize in goods for which they have a comparative advantage and then trade with one another. The process of specialization and trade has positive net benefits and is, therefore, beneficial to everyone. A nation will not have a comparative advantage in a product if it does not also have an absolute advantage in the production of that good. Answer BankExplanation / Answer
Statements that are true:
Countries specialize in the production of goods for with they have a comparative advantage.
It can be mutually beneficial for two nations to specialize in goods for which they have a comparative advantage and then trade with one another.
False:
1. Absolute advantage is the source of the potential gains from specialization and trade.
It is false because not absolute advantage, but comparative advantage is the source of potential gains from specialization and trade, as the consumption possibility is based on comparative advantage not on absolute advantage while product possibility is based on absolute advantage and to gain from trade we will always look for consumption possibility not production possibility.
2. A nation will not have a comparative advantage in a production if it does not also have an absolute advantage in the production of that good.
It is false because comparative advantage means the nation is comparatively produce the good at lower opportunity cost than the other nation and even if the nation does not has absolute advantage in production of any the goods ( say, from 2 goods) even though the nation must have comparative advantage in one of good. So this statement is false.
3. The process of specialization and trade has positive net benefits and is therefore beneficial to everyone.
False - not beneficial to everyone, as it create winners and also lossers for example when trade opens the people involved in the production of the good in which the country has not comparative advantage will lose their jobs sure to specialisation and trade, so it is not beneficial for all.