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True or false, please explain your reasoning. Mike and John each produce strong cocktails and yummy...

True or false, please explain your reasoning.

Mike and John each produce strong cocktails and yummy cookies. Mike takes less time than John to mix up a cocktail and to bake a batch of cookies. Thus, Mike would rather produce on his own because he cannot gain from trade with John.

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Answer #1

False.

Absolute advantage is when one produces more of a products. Comparative advantage is how much we give up to produce the other good. Even through Mike has absolute advantage in all the products. It does not mean he will not benefit him trade. Gains of trade are a result of one's comparative advantage in that product. Even though Mike has an absolute advantage in all the products, it doesn't mean he also have comparative advantage for the same. Or in other words we can say that Mike can benefit from the product in which it absolute advantage is relatively higher.

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