Question

Evaluate whether the following statements are true or false. Also, please provide your reasoning to support...

Evaluate whether the following statements are true or false. Also, please provide your reasoning to support your answer.

Suppose that U.S. has an absolute advantage in the computer production compared to Germany, while Germany has an absolute advantage in the auto production compared to U.S. This implies that U.S. has a comparative advantage in the computer production and Germany has a comparative advantage in the auto production.

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Answer #1

Answer: FALSE

Explanation: Absolute advantage reoccurs when the nation has the capability to the superior production capabilities in comparison to another nation, comparative advantage is based on the concept of opportunity cost wherein the nation has ability to produce a specific good at a lower opportunity versus other. Even if one nation has an absolute advantage in producing all goods, however still different nations could have different comparative advantages.

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