Distinguish the concepts of comparative advantage and absolute advantage
What will be an ideal response?
Comparative advantage is the ability to produce a good or service at a lower opportunity cost compared to other producers, while absolute advantage is the ability to produce more units of a good or service using a given quantity of labor or resource inputs. Comparative advantage is a relative concept and it is the basis for specialization.
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Canada and the United States produce computers and chemicals using labor and capital as the only inputs in production. The United States is capital abundant, and Canada is labor abundant. Computer production is more labor intensive than chemical production in both countries. What does the HeckscherOhlin model predict will happen to prices of computers or chemicals in the two countries?
a. The price of chemicals should rise in the United States. b. The price of chemicals should fall in the United States. c. The price of computers should fall in Canada. d. The price of chemicals should rise in Canada.
When people make deposits of currency into a bank, the quantity of M1
A) changes only if the deposit is an open market operation. B) immediately decreases by the amount of the deposit. C) immediately increases by the amount of the deposit. D) does not immediately change. E) immediately changes but whether it increases or decreases depends on whether the bank had excess reserves or did not have excess reserves.