Question

Ithilium, a European country, is able to produce more electronics than Kilim, a North American country, even though both countries use the same amount of resources. Given this information, it can be deduced that Ithilium has:________.

a. comparative advantage over Kilim.
b. higher trade surplus than Kilim.
c. absolute advantage over Kilim.
d. higher balance of payments surplus than Kilim.

Answer 1

c. absolute advantage over Kilim.

Step-by-step explanation:

Ithilium, a European country, is able to produce more electronics than Kilim, a North American country, even though both countries use the same amount of resources. Given this information, it can be deduced that Ithilium has absolute advantage over Kilim.

Comparative advantage refers to when a company produces the same number of outputs with lower opportunity costs while absolute advantage is when a country produces more outputs from less resources.

In the scenario, we are not given opportunity costs and we are not looking at the costs of producing a unit of output but rather how much output a country can get from a given level of resources which is in line with the concept of Absolute Advantage.

.