Question

Given the data in the chart above, which statement explains why these three countries would benefit from specialization and trade? (4 points) a Each country has an absolute advantage in one activity. b No country has an absolute advantage in all activities. c One country has a comparative advantage in all activities. d One country has an absolute advantage in all activities.

Answer 1

Answer: b. No country has an absolute advantage in all activities.

Explanation:

Looking at the graph chart presented, we can tell that no country has an absolute advantage (taking less hours to produce a good) for both the production of olive oil and wine.

This means that the countries with better absolute advantages in one area should focus on those activities and then trade this good with the other country for the other good that they do not have an absolute advantage in.

Note: Comparative advantage is a better measure for when countries need to specialize but due to the option I explained with absolute advantage.