Which statement is true?
A)A party has the comparative advantage in producing a good if it has the absolute advantage in producing the other good.
B)If one party is more productive in producing both products, it has a comparative advantage in producing both goods.
C)A party can have a comparative disadvantage in producing both goods.
D)If parties specialize and trade, it is only the less productive party that can experience any gains from trade.
E)None of the above statements are true.

Question

Quizplus · Accepted Answer

Comparative advantage refers to the ability of a party to produce a particular good at a lower opportunity cost than another, while absolute advantage is about being more productive or efficient in producing a good. A party can have a comparative advantage in producing one good even if it doesn't have an absolute advantage in producing any goods. It's possible for one party to be more productive in both goods but still only have a comparative advantage in one due to differences in opportunity costs. Both parties can gain from trade through specialization according to their comparative advantages, not just the less productive party.

Which Statement Is True