Question
Does having an absolute advantage means you should undertake to produce everything your country could produce? Also, does this mean that absolute advantage means more
Does having an absolute advantage means you should undertake to produce everything your country could produce? Also, does this mean that absolute advantage means more than comparative advantage? If so, why? If not, why not?
Now suppose that automobile workers in South Korea can produce components to make cars at the rate of six sets of components per worker per day and can assemble cars at a rate of four cars per worker per day. In North Korea, automobile workers can produce components at the rate of one set of components per day and can assemble cars at the rate of three cars per day per worker.
Which economy has the absolute advantage? Which one has the edge in terms of a comparative advantage? Who should trade with whom and why? Would it be better for North or South Korea to outsource parts production? If so, why or why not? Finally, how might the foreign exchange rate on the international FOREX markets play a part in terms of the North Korean Won, the South Korean Won, and production (and potential trade) considerations in this case? Please be specific.
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