When Mike has an absolute advantage in the production of two goods over Tommy, Mike
A) is better off if he does not engage in specialisation and trade with Tommy.
B) is more productive in producing both goods than Tommy.
C) is less productive than Tommy.
D) cannot gain from trade with Tommy.
E) always has a comparative advantage over Tommy in the production of both goods.

Question

Quizplus · Accepted Answer

Absolute advantage refers to the ability to produce a good with fewer resources than another producer. If Mike has an absolute advantage over Tommy in the production of two goods, it means that he can produce more of both goods with the same amount of resources, or produce the same amount of goods with fewer resources than Tommy. This means that Mike is more productive in producing both goods than Tommy, and therefore, has an advantage in both. However, this does not necessarily mean that Mike cannot gain from trade with Tommy. If they specialize in producing the good in which they have an absolute advantage and trade with each other, both can benefit from the trade. Therefore, option A, C, D, and E are incorrect.

When Mike Has an Absolute Advantage in the Production of Two