Question

Assume the nation of Teeveeland does not trade with the rest of the world. By comparing the world price of televisions to the price of televisions in Teeveeland, we can determine whether A. Teeveeland has a comparative advantage in producing televisions. B. Teeveeland has an absolute advantage in producing televisions. C. consumer surplus exceeds producer surplus in Teeveeland. D. All of the above are correct.

Answer 1

Answer:

A) Teeveeland has a comparative advantage in producing televisions.

Explanation:

If Teeveeland has a comparative advantage in producing televisions, then the price of televisions in Teeveeland should be cheaper than the world price. The world price is the average price of a good traded in international markets, in this case televisions.

International trade is based on comparative advantages, since countries export the goods that is can produce more efficiently (they have a comparative advantage in their production) and they trade for goods that they cannot produce efficiently. So if Teeveeland has a comparative advantage in producing televisions, it should start to sell them to the rest of the world.