"When countries specialize in producing the good in which they have a comparative advantage and then trade with each other, only the country with the absolute advantage gains
" Is the previous statement correct or incorrect? Briefly explain your answer.
The statement is incorrect. Absolute advantage, which is essentially the ability to produce more of a good than another country, has nothing to do with the gains from trade. All nations gain from free international trade regardless of whether they possess an absolute advantage or not.
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When the production possibilities frontier is bowed outwards, the opportunity cost of producing more of one good
A) increases in terms of the amount foregone of the other good. B) decreases in terms of the amount foregone of the other good. C) remains constant. D) cannot be determined.
An increase in autonomous spending leads to higher ________
A) inflation B) output C) real interest rate D) all of the above E) none of the above