Consider two parties in a trading relationship when neither party has comparative advantage. Does this mean neither have absolute advantage? Explain clearly with numerical examples.
a) Yes, if neither party has comparative advantage, then neither party has absolute advantage. For instance, if Party A can produce 10 units of X or 5 units of Y, and Party B can produce 8 units of X or 4 units of Y, neither has an absolute advantage.
b) No, absolute advantage can still exist independently of comparative advantage. For instance, even if neither party has comparative advantage, one party may still produce goods at a lower opportunity cost than the other party.
c) Yes, if neither party has comparative advantage, then both parties lack absolute advantage. For example, if Party A can produce 20 units of X or 30 units of Y, and Party B can produce 15 units of X or 25 units of Y, neither has an absolute advantage.
d) No, if neither party has comparative advantage, then both parties necessarily have absolute advantage. For instance, if Party A can produce 10 units of X or 15 units of Y, and Party B can produce 8 units of X or 12 units of Y, both have an absolute advantage in certain goods.