In 2011, geologists discovered a huge deposit of rare earths in Afghan

QUESTION

In 2011, geologists discovered a huge deposit of rare earths in Afghanistan. The minerals are used to manufacture technology products and are in high global demand. Previously, China held 97 percent of the world’s rare earth deposits.

How will this discovery affect China over the years?
A) It will be forced into joint ventures with Afghanistan.
B) It will lose its comparative advantage over other countries.
C) It will lose its absolute advantage over other countries.
D) It will develop an unfavorable balance of trade.
E) It will become an indirect exporter of rare earth.

ANSWER

Answer: C
Explanation: C) Absolute advantage requires a country (or other entity) to have monopoly status for the product. As Afghanistan’s deposits are mined and traded, China will lose this monopoly.