Question

You will be evaluating each of the questions as you will need to make sure to use relevant economic terms and content development in your work.

REMEMBER TO WRITE THE QUESTION FIRST AND THEN PROVIDE YOUR RESPONSE.

Questions:

1. Why does comparative advantage matter more than absolute advantage for trade?

2. Draw a production possibilities frontier curve. Illustrate the set of points that is feasible, the set of points that is efficient, the set of points that is inefficient, and the set of points that is not feasible. If you prefer not to draw then explain.

3. Explain why seniors often earn lower grades in their last semester before graduation (hint: incentive problem).

Answer 1

Question 1)

When a smaller quantity of inputs is needed to produce a good , then it is said to have an absolute advantage in producing that good. Comparative advantage implies production at a lower opportunity cost than another.

Thus absolute advantage refers to the superior production capabilities of one nation versus another, comparative advantage is based on the concept of opportunity cost.

Given limited resources, a nation's choice to specialize in the production of a particular good is determined by its comparative advantage.

The focus on the production of those goods for which a nation's resources are best suited is called specialization. Thus increase in productive skill that is achieved from focused repetition in producing a good or service is Specialization , on which concept of comparative advantage is based upon.

Even if one nation has absolute advantage in all goods , but it can't specialize or can't have Comparative advantage in all goods, hence comparative advantage concept is more relevant than absolute advantage.

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