Refer to the figure shown, which represents the production possibilities frontiers for Countries A and B. Assuming both countries have the same amount of resources available to them, which of the following statements is true? Country A has:
A. the absolute advantage in neither the production of cars nor trucks.
B. an absolute advantage in the production of cars, and Country B has the absolute advantage in the production of trucks.
C. an absolute advantage in the production of trucks, and Country B has the absolute advantage in the production of cars.
D. the absolute advantage in the production of both cars and trucks.
Answer: D
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If the Federal Reserve wanted to stimulate the economy, it would most likely:
A. reduce the discount rate. B. decrease reserves in the banking system. C. increase reserves in the banking system. D. Both A and C are true.
If a $50 billion decrease in investment spending causes income to decline by $50 billion in the first round of the multiplier process and by $25 in the second round, the multiplier in the economy is:
A. 2. B. 3.33. C. 5. D. 10.