question archive Suppose Venezuela can produce petroleum at a lower opportunity cost because of its natural resources, and China can produce clothing at a low opportunity cost because of its population and level of industrial development
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Suppose Venezuela can produce petroleum at a lower opportunity cost because of its natural resources, and China can produce clothing at a low opportunity cost because of its population and level of industrial development.
Which statement below regarding comparative advantage is NOT true?
China has a comparative advantage in clothing production.
Venezuela has a comparative advantage in petroleum production.
Venezuela can produce clothing at low opportunity cost.
China can produce petroleum at high opportunity cost.
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Answer:
Venezuela can produce clothing at a lower opportunity cost regarding comparative advantage is not a true statement.
Step-by-step explanation
Comparative profits are defined in terms of cost savings the country produces the best at lower cost costs than the other country which has a comparative advantage in producing that good. Opportunity costs are also known as inclusion costs, costs that occur when we choose among other options. Therefore, a country with a low cost of production opportunities enjoys comparative profits. In the question given Venezuela gets a comparative advantage in petroleum production and China gets a comparative advantage in textile production. The country of Venezuela can also produce garments but with a high price of opportunity, this is because they do not have a high level of people and industrial development so they need to use more resources to produce the fabric. This is similar to China when they produce Petroleum instead of clothing.