Ecuador has a comparative advantage in the production of bananas over the United States. Which of the following statements is true?

Question

Ecuador can produce bananas at a lower opportunity cost than the United States.

Ecuador also has an absolute advantage in the production of bananas.

The United States cannot produce bananas.

The United States has an absolute advantage in the production of bananas.

Answer 1

The correct statement is:

Ecuador can produce bananas at a lower opportunity cost than the United States.

This statement is true because having a comparative advantage means that Ecuador can produce bananas more efficiently relative to other goods compared to the United States. The other statements are not necessarily true:

• "Ecuador also has an absolute advantage in the production of bananas": This is not guaranteed; absolute advantage refers to the ability to produce more of a good with the same resources, which is not implied by comparative advantage alone.
• "The United States cannot produce bananas": This is false; the United States can produce bananas, albeit perhaps at a higher opportunity cost.
• "The United States has an absolute advantage in the production of bananas": This is also not necessarily true; it depends on the specific production capabilities and resources available in each country.