Question

1. If one person/firm/country has:

a. An absolute advantage in the production of a good, do they automatically also have a comparative advantage in the production of that good as well? Why?

b. An absolute advantage in the production of all good is it worth it for them to trade with others? why?

2. Is absolute advantage a requirement for comparative advantage? Why?

Answer 1

a) No, having an absolute advantage has nothing to do with the comparative advantage, there are chances that a nation might have a comparative advantage in the production of one goods no absolute advantage at all. Absolute advantage is only an individual number and for trade we will need relative numbers in the market.

b) NO, they will only trade if they have a comparative advantage in the production of that good. having a comparative advantage means that the economy can specialize in that product and that will benefit the economy.

c) No, absolute advantage is not a requirement for comparative advantage but we need relative price for trading so that the nation with a lower relative price will trade and that is given by comparative advantage.