Assume that Australia has a comparative advantage in producing surfboards and New Zealand imports surfboards from Australia.We can conclude that
A)Australia also has an absolute advantage in producing surfboards relative to New Zealand.
B)Australia has a lower opportunity cost of producing surfboards relative to New Zealand.
C)New Zealand has an absolute disadvantage in producing surfboards relative to Australia.
D)Labor costs are higher for surfboard producers in New Zealand than in Australia.

Question

Quizplus · Accepted Answer

We cannot conclude that Australia has an absolute advantage in producing surfboards relative to New Zealand because the information provided only mentions a comparative advantage. However, we can conclude that Australia has a lower opportunity cost of producing surfboards relative to New Zealand because New Zealand chooses to import surfboards from Australia instead of producing them domestically. Option C is incorrect because the concept of absolute disadvantage is not commonly used in economics. Option D is not necessarily true or supported by the information given.

Assume That Australia Has a Comparative Advantage in Producing Surfboards