Difficulty: Easy

Average Score: 89%

Which statement accurately reflects the absolute advantage and comparative advantage of corn?

Diagram for question

Rationale

Country A has the absolute advantage in corn, and Country B has the comparative advantage in corn.

Country A is more efficient in the production of corn, meaning it can produce more corn using the same resources compared to Country B. Meanwhile, Country B has a lower opportunity cost for producing corn, thereby demonstrating a comparative advantage in its production.

A (Country A has the absolute advantage in corn, and Country B has the comparative advantage in corn) CORRECT

This statement accurately describes the situation where Country A is able to produce corn more efficiently than Country B, thus having the absolute advantage. At the same time, if Country B sacrifices less of another good to produce corn, it holds the comparative advantage.

B (Country B has the absolute advantage and comparative advantage in corn) YOUR ANSWER

This choice incorrectly asserts that Country B is more efficient in producing corn and also has a lower opportunity cost. If Country A holds the absolute advantage, then it cannot be true that Country B has both types of advantage in corn production.

C (Country B has the absolute advantage in corn, and Country A has the comparative advantage in corn) YOUR ANSWER

This option contradicts the definition of absolute advantage. If Country B is not more efficient in producing corn than Country A, then it cannot have the absolute advantage. Therefore, this statement is incorrect.

D (Country A has the absolute advantage and comparative advantage in corn) YOUR ANSWER

This choice mistakenly suggests that Country A has both advantages. While it may have the absolute advantage, it is possible that another country (Country B) has a lower opportunity cost in producing corn, thus holding the comparative advantage.

Conclusion

Understanding absolute and comparative advantages is crucial in economics. Country A's efficiency in corn production grants it the absolute advantage, while Country B's lower opportunity cost in corn production provides it with the comparative advantage. Recognizing these distinctions helps clarify trade benefits and production efficiencies between countries.

Related Questions

View all