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Say whether the statement is True or False. If False, supply a reason or correct the...

Say whether the statement is True or False. If False, supply a reason or correct the statement.

1. Even if a country has absolute advantage, it should still trade because it may get something that it cannot produce.

2. According to the Factor Mobility critique, the trade model is incorrect because it is not possible to switch between industries.

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Answer #1

a) True

Even if the nation is having an absolute advantage in the production of certain goods, they will not have a comparative advantage in the production of the other goods. So, they can export the goods where they have a comparative advantage and import the goods where they do not have a comparative advantage.

b) True

As per the critique of the factor mobility theorem it is impossible for the resources in the market to change the industry so easily. The statement is true.

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