Answer:
The correct answer is: the U.S. has an absolute advantage in producing toys, but China has a comparative advantage in producing toys
Step-by-step explanation:
An absolute advantage means that a nation can produce a specific product more efficiently, while a comparative advantage means that nations sacrifice less than other products when that specific product is produced. Despite this, the comparative advantage is more important than the absolute advantage because nations use it to decide on their specialties, and this must be based on production on the results of comparative advantages in better product combinations, even without the International Trade. Regarding specialization, the comparative advantage is the key factor, while the absolute advantage is not important.
It is possible that there is an absolute advantage over several goods, but you cannot have a comparative advantage for both goods, since the opportunity cost of one good is the inverse of the opportunity cost of the other good. David Ricardo concludes with this theory that when people specialize in producing that good in which they have a comparative advantage, the total production of the economy increases, improving the well-being of all. It is important to note that for specialization and trade to have benefits, the price at which it is traded should not be above its opportunity costs.