Which of the following statements is always true?
A) Comparative advantage implies absolute advantage.
B) Absolute advantage implies comparative advantage.
C) Comparative advantage does not require absolute advantage.
D) Absolute advantage requires comparative advantage.
E) Comparative advantage requires absolute advantage.

Question

Quizplus · Accepted Answer

Comparative advantage is the ability of an individual, firm or country to produce a good or service at a lower opportunity cost than its competitors. Absolute advantage is the ability of an individual, firm or country to produce a good or service more efficiently than its competitors.

Comparative advantage does not require absolute advantage. In other words, a country could have a lower opportunity cost of producing a good compared to another country, even if it has lower productivity or efficiency in all goods. For example, a country may be better at producing wheat while another country is better at producing cloth. The country that is better at producing wheat should specialize in producing wheat, even if it is less efficient in producing cloth compared to the other country. This will result in both countries being better off as they can trade with each other based on their comparative advantages.

Which of the Following Statements Is Always True