Question 3

Country A has the absolute advantage in corn, and Country B has the comparative advantage in corn.

Country A holds an absolute advantage in corn production, meaning it can produce corn more efficiently than Country B. However, Country B has a comparative advantage in corn, indicating it has a lower opportunity cost in producing corn compared to other goods.

A) Country A has the absolute advantage in corn, and Country B has the comparative advantage in corn

This statement is accurate as it correctly identifies that Country A produces corn more efficiently, which is the essence of absolute advantage. Additionally, it recognizes that Country B has a comparative advantage, suggesting that it gives up less of other goods to produce corn compared to Country A.

B) Country B has the absolute advantage and comparative advantage in corn

This statement is incorrect. If Country B had an absolute advantage, it would mean it produces corn more efficiently than Country A, which contradicts the given context that Country A has that advantage. Furthermore, claiming both advantages for the same country is not possible if another country is identified as having an absolute advantage.

C) Country B has the absolute advantage in corn, and Country A has the comparative advantage in corn

This statement is also incorrect. It misattributes the absolute advantage to Country B, which is not supported by the context. While it suggests that Country A has a comparative advantage, the context indicates that Country B, despite having a comparative advantage, cannot possess the absolute advantage in corn production.

D) Country A has the absolute advantage and comparative advantage in corn

This statement is misleading. Although it correctly states that Country A has the absolute advantage, it incorrectly claims that Country A also has the comparative advantage. In reality, it is Country B that has the comparative advantage in corn production.

Conclusion

The correct answer is definitive as it accurately reflects the respective advantages of both countries in corn production. Country A's ability to produce corn more efficiently establishes its absolute advantage, while Country B's lower opportunity cost in corn production confirms its comparative advantage. All other options fail to correctly identify the roles of absolute and comparative advantages, leading to inaccuracies in their assertions.