a. Principle of Absolute Advantage:
The principle of absolute advantage refers to a situation in which a country can produce a good with fewer resources (such as labor, capital, or land) compared to another country. This means that the country can produce the same amount of a good with fewer inputs or produce more of the same good with the same inputs. In essence, a country has an absolute advantage when it is more efficient in producing a specific product than another country.

b. Principle of Comparative Advantage:
The principle of comparative advantage states that even if a country does not have an absolute advantage in producing any goods, it can still benefit from trade by specializing in and exporting goods in which it has a lower opportunity cost compared to other countries. Opportunity cost refers to the value of the next best alternative foregone when a choice is made. By focusing on the production of goods where they have a comparative advantage, countries can maximize efficiency and benefit from trade.

Incorrect Response:
The principle of comparative advantage suggests that countries should focus on producing goods in which they are less efficient than other countries, leading to higher costs and reduced productivity.

c. When determining which country should specialize in a good for trade, we use the principle of comparative advantage. This principle allows countries to specialize in the production of goods where they have a lower opportunity cost compared to other countries, thus maximizing overall efficiency and benefiting from trade.

Example using “Strawberry Basketballs”:
Let’s consider two countries, Country A and Country B, producing two goods: strawberries and basketballs. Country A can produce 10 baskets of strawberries or 5 basketballs in one hour, while Country B can produce 8 baskets of strawberries or 4 basketballs in one hour.

Country A has an absolute advantage in both strawberries and basketballs because it can produce more of each good using the same amount of resources. However, when we calculate the opportunity cost (what must be given up to produce each good) for each country, we find that Country A has a lower opportunity cost for producing strawberries (1 basketball per 2 baskets of strawberries) compared to Country B (1 basketball per 2.67 baskets of strawberries).

Conversely, Country B has a lower opportunity cost for producing basketballs (2 baskets of strawberries per basketball) compared to Country A (1 basket of strawberries per basketball). Therefore, according to the principle of comparative advantage, Country A should specialize in producing strawberries, while Country B should specialize in producing basketballs. By trading these goods based on their comparative advantages, both countries can benefit from the exchange and increase overall efficiency in resource allocation.