Good Evening My Dear Cramster Family: I have to answer if these questions are tr

Question

Good Evening My Dear Cramster Family:

I have to answer if these questions are true or false, and couldyou tell me if I am correct with the answers I have chosen? Thank you.

1. Two countries can achieve gains from trade even if one ofthe countries has an absolute advantage in the production of allgoods. (T)
2. Certain very talented people have a comparative advantagein everything they do. (T)
3. If a certain trade is good for one person it can't be goodfor the other one. (T)
4. If a certain trade is good for one person it is alwaysgood for a country, it must be good for everyone in thecountry. (F)

All the best,

Nettie

Explanation / Answer

           a.         True; twocountries can achieve gains from trade even if one of the countrieshas an absolute advantage in the production of all goods. All thatis necessary is that each country have a comparative advantage insome good.

b.         False; it is nottrue that some people have a comparative advantage in everythingthey do. In fact, no one can have a comparative advantage ineverything. Comparative advantage reflects the opportunity cost ofone good or activity in terms of another. If you have a comparativeadvantage in one thing, you must have a comparative disadvantage inthe other thing.

c.          False; itis not true that if a trade is good for one person, it cannot begood for the other one. Trades can and do benefit bothsides¾especially trades based on comparative advantage. Ifboth sides did not benefit, trades would never occur.

d.         False; tradethat makes the country better off can harm certain individuals inthe country. For example, suppose a country has a comparativeadvantage in producing wheat and a comparative disadvantage inproducing cars. Exporting wheat and importing cars will benefit thenation as a whole, as it will be able to consume more of all goods.However, the introduction of trade will likely be harmful todomestic auto workers and manufacturers.

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