Question

Please help me with economics homework.

Answer 1

4. i. False

Even if a country has absolute advantage in all goods, it can have comparitive disadvantage in a good. Hence it can gain by indulging in trade.

4. ii. False

When a country has absolute advantage, it means country can produce the good at lower accounting cost. The opportunity cost may be higher even if a country has absolute advantage.

5. C (3 dozen eggs)

France will sell it and earn 2 dozen eggs and Sweden will buy it and save spending of 1 extra dozen egg which would have incurred had it produced locally.

6. C

Mexico cashew cost 125 peso and walnut cost 95 peso.

In US, cashew cost 112 pesos and walnut cost 80 pesos.

US have absolute advantage on both items.

But Mexico has comparative advantage for cashewnut. (1 pound cashew nut = 1.32 pound of walnut whereas 1 pound cashewnut = 1.4 pound of walnut in US)

Hence, Mexico will export cashewnut and import walnuts from US.

7. C