Countries differ in their resource endowments, and a given country can enjoy an absolute advantage in products that intensively use its most abundant factor of production.

Question

Quizplus · Accepted Answer

This statement is true. The theory of absolute advantage states that a country can produce a certain good at a lower cost if it has an abundant supply of the factor of production that is most intensely used in the production of that good. Therefore, a country with abundant labor may have an absolute advantage in producing goods that require a lot of labor, while a country with abundant capital may have an absolute advantage in producing goods that require a lot of capital.

Countries Differ in Their Resource Endowments, and a Given Country