uestion3 Chapter 3 Problems and Applications 9 Are the foll

uestion3 Chapter 3 . Problems and Applications #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 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.\"

Solution

a. True. A country can have absolute advantage in the production of all goods but each country should have comparative advantage in the production of any one good.Comparative advantage is the opportunity cost of producing one good in terms of another.

b) False. No one can have comparative advantage in doing everything.

c) False. Trade based on comparative advantage benefits both parties.

d) False. To be good for both parties, it should be based on the opportunity costs.

e) False. If the country has comparative advantage in the production of one good then it will export that good. Producers of that good will benefit. The country has also to import goods in which it does not have comparative advantage. The producers of the goods that are imported will not benefit and will be affected.