Question

Which of the following statements about absolute advantage is true?

A) Suppose the world consists of two countries—the U.S. and Mexico.
B) Further, suppose there are only two goods—food and clothing.
C) Which of the following statements is true?
D) None of the above

Answer 1

Absolute advantage refers to the ability of a country to produce more goods using fewer resources than another country. In the example given, the United States has an absolute advantage in producing both shoes and refrigerators because it requires fewer workers compared to Mexico for the same number of goods.The correct option is B.

Step-by-step explanation:

The concept under discussion is absolute advantage, which is an economic concept that refers to the ability of a party to produce a greater quantity of a good, product, or service than competitors using the same amount of resources. Absolute advantage can be contrasted with comparative advantage, which considers the opportunity cost of producing goods.

In the illustrated example of trade between the United States and Mexico, the United States has an absolute advantage in producing both shoes and refrigerators because it requires fewer workers than Mexico to produce a set number of these goods.

Specifically, the U.S. needs four workers to produce 1,000 pairs of shoes, whereas Mexico needs five workers for the same number. Meanwhile, for producing 1,000 refrigerators, the U.S. needs only one worker compared to four Mexican workers. This means that the U.S. has an absolute advantage in productivity for both shoes and refrigerators.

The correct option is B.