The law of comparative cost and absolute cost advantage are not the same in that;...
The law of comparative cost and absolute cost advantage are not the same in that;
- A) former require that one of the countries has absolute advantage in the two goods but latter does not
- B) former requires one country to have at least absolute advantage in one of the trading goods over the other country but latter does not
- C) former does not require any of the country to have absolute advantage in any of the two goods but latter require that one of the countries should have absolute advantage in all the goods
- D) former does not require any of the country to have absolute advantage in any of the two goods but latter require that one of the countries should have absolute advantage in at least one of the goods
Correct Answer: D) former does not require any of the country to have absolute advantage in any of the two goods but latter require that one of the countries should have absolute advantage in at least one of the goods
Explanation
This Economics question is asking about the differences between the law of comparative cost and absolute cost advantage. The options provide different statements about these differences, and we are to choose the correct option.
Option A says that the former requires that one of the countries has absolute advantage in both goods, while the latter does not. This is incorrect because the law of comparative cost does not require that one country has absolute advantage in both goods.
Option B says that the former requires one country to have at least absolute advantage in one of the trading goods over the other country, while the latter does not. This is also incorrect because the law of comparative cost does not require absolute advantage in any of the goods.
Option C says that the former does not require any of the country to have absolute advantage in any of the two goods, but the latter requires that one of the countries should have absolute advantage in all the goods. This is incorrect because the law of absolute cost advantage does not require absolute advantage in all the goods.
Option D is the correct answer. It says that the former does not require any of the country to have absolute advantage in any of the two goods, but the latter requires that one of the countries should have absolute advantage in at least one of the goods. This means that while the law of comparative cost does not require absolute advantage, the law of absolute cost advantage requires at least one country to have absolute advantage in one of the goods.
In summary, the key difference between the law of comparative cost and absolute cost advantage is that the former does not require absolute advantage in any of the goods, while the latter requires at least one country to have absolute advantage in one of the goods.