Suppose that only two goods are produced in an economy.If a country possesses the comparative advantage in the production of one good:
A)then it must also possess the comparative advantage in the production of the other good.
B)then it must also possess the absolute advantage in the production of that good.
C)then it cannot also possess the comparative advantage in the production of the other good.
D)then it cannot also possess the absolute advantage in the production of that good.

Question

Quizplus · Accepted Answer

Comparative advantage refers to the ability of a country to produce a good at a lower opportunity cost than another country. Therefore, if a country has a comparative advantage in producing one good, it means that it has to give up fewer units of the other good to produce one unit of that good. This necessarily implies that it has a higher opportunity cost in producing the other good, and thus, it cannot have a comparative advantage in producing the other good. Therefore, Option C is the correct answer. Option A is incorrect as it is not necessary for a country to have a comparative advantage in producing both goods. Option B is incorrect as comparative advantage is not the same as absolute advantage which refers to the ability to produce a good more efficiently than another country without considering opportunity costs. Option D is incorrect as a country can still have an absolute advantage in producing a good even if it does not have the comparative advantage in producing that good.

Suppose That Only Two Goods Are Produced in an Economy