Question

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Comparative advantage is reducing the opportunity cost of a given production strategy. Absolute advantage requires fewer resources—generally raw manpower or time to produce a given item (White, 2018). If I were in a small country, I would prefer to have absolute advantage with trading because for example if the United States is manufacturing more automobiles than Germany, It would be more feasible to stay in the United States because of the ability to produce more automobiles than the next country, more job opportunities would be available in the car manufacture industry and consumers will be more vulnerable to purchase a domestic vehicle before foreign since there is a significant difference in price.

Answer 1

The statement is true. If a country has absolute advantage in the production of cars, then it will be profitable for the country to produce more cars in the country itself. Also for the consumers who can pay a lower price as compared to the prices paid in other countries. This will increase consumer surplus. Also, automobile industry is a labor intensive industry requiring both skilled as well as low-skilled labor to carry out the work. This will increase the employment opportunities in the country as demand for labor will increase. Thus, it is preferable to have an absolute advantage in the production of the good.