ECONOMICS
FISCAL POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Absolute Advantage
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Comparative Advantage
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Either A or B
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None of the above
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Detailed explanation-1: -For example, if a country is skilled at making both cheese and chocolate, they may determine how much labor goes into producing each good. If it takes one hour of labor to produce 10 units of cheese and one of of labor to produce 20 units of chocolate, then this country has a comparative advantage in making chocolate.
Detailed explanation-2: -Comparative advantage refers to the ability to produce goods and services at a lower opportunity cost, not necessarily at a greater volume or quality.
Detailed explanation-3: -California makes 50 wine and 25 tequila. Mexico makes 20 tequila and 10 wine. In total, 100 wine and 40 tequila. Even though California has an absolute advantage in both goods, thanks to comparative advantage, both countries can have more of both goods when they specialize and trade.