If a comparative advantage implies that a country can produce a product at a lower opportunity cost than another country then why do we see two countries often trading the same goods? For instance, for most agricultural products the U.S
has a comparative advantage. Japan, one of America's largest trading partners has a comparative advantage in the production of most economy cars. Explain what is going on here when we still see the U.S. exporting cars to Japan and the U.S. importing some foods from Japan.
First of all not all goods are homogeneous. The U.S. may import some food from Japan that either is not available here or is produced at lower cost or has a higher perceived or actual quality differential. On the other hand while Japan has a comparative advantage in the production of many economy cars there is a cost difference and a quality difference across makes a models that doesn't allow for a apples-to-apples comparison.
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One key assumption of the classical model is
A) government spending plays a major role. B) money illusion cannot fool workers. C) wages are sticky. D) prices are sticky.
The per capita real GDP in Sri Lanka is likely to be lower than the United States because Sri Lanka's economy is characterized by:
a. a more equitable income distribution system. b. a high population growth. c. a low regard for political freedom. d. a higher level of consumption spending. e. a high budget deficit.