In a two-country, two-product world, if Australia has a comparative advantage over New Zealand in the...
In a two-country, two-product world, if Australia has a comparative advantage over New Zealand in the production of grapes relative to kiwi fruit, which statement must be TRUE?
| a. |
New Zealand has a comparative advantage over Australia in producing grapes. |
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| b. |
|
||
| c. |
|
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| d. |
New Zealand has an absolute advantage over Australia in producing kiwi fruit. |
Homework Answers
Ans. b) New Zealand has a comparative advantage over Australia in producing kiwi fruit.
Since Australia is having a comparative advantage in producing grapes over New Zealand, it is imperative that Australia does not have a comparative advantage in the production of kiwi fruit as well since that would have led Australia to have absolute advantage over New Zealand in the production of both the goods.
Hence, New Zealand has a comparative advantage over Australia in producing kiwi fruit.
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