Question

Country A has an absolute advantage over Country B in the production of both soybeans and corn. Explain a scenario in which both countries would benefit if Country A specialized in soybeans and Country B specialized in corn.

Answer 1

They can both bond together and trade the same amount of goods

Answer 2

When a country has an absolute advantage in producing two types of goods, that is, that country can produce both goods more cheaper than the other country, it is still possible for that country to benefit more by specializing in one of the two kinds of goods and import the good of the other country. Everything will depend on the comparative advantage between countries.

Comparative advantage is an economic concept that aims to explain differences in production and trade between two different countries or nations, based on the same product. The idea is to analyze which stakeholder has the lowest opportunity cost of the same good. Opportunity is a concept associated with productive efficiency, which aims to measure how much a country fails to earn in other activities when deciding a given good. Thus, the country with the lowest opportunity cost will have higher productive efficiency and consequently will have the comparative advantage in the production of the good. Thus, this country will specialize in the production of this good and other countries will produce other goods for which their respective opportunity costs are lower. Then countries trade products in international trade and everyone wins.

Therefore, if the opportunity cost of country A is higher to produce corn compared to soybean production, it is better to produce only soybeans and buy corn from country B.