Th4.1: Absolute and Comparative Advantage

Question 1

What does the theory of comparative advantage state?

Answer 1

that countries find specialisation mutually advantageous if the opportunity costs of production are different

Question 2

If they are the same…

Answer 2

there will be no gain from trade

Question 3

When does absolute advantage exist?

Answer 3

when a country can produce a good more cheaply in absolute terms than another country

Question 4

When does comparative advantage exist?

Answer 4

when a country is able to produce a good more cheaply relative to other goods produced