In order to determine if comparative advantages exist between the two countries, you have to figure out the opportunity cost of making one unit of one of the items . ... Their opportunity costs are lower for each of these products relative to one another, and so there is potential for beneficial trade.
How do you determine a country’s comparative advantage?
To calculate comparative advantage, find the opportunity cost of producing one barrel of oil in both countries . The country with the lowest opportunity cost has the comparative advantage. With the same labor time, Canada can produce either 20 barrels of oil or 40 tons of lumber.
How is comparative advantage determined quizlet?
Comparative advantage is determined by which person or group of persons can produce a given quantity of a good using the fewest resources . ... lower than his or her opportunity cost of that good.
When determining comparative advantage one must determine?
The theory of comparative advantage introduces opportunity cost as a factor for analysis in choosing between different options for production. Comparative advantage suggests that countries will engage in trade with one another, exporting the goods that they have a relative advantage in.
What does comparative advantage depend on?
Comparative advantage is an economy’s ability to produce a particular good or service at a lower opportunity cost than its trading partners. A comparative advantage gives a company the ability to sell goods and services at a lower price than its competitors and realize stronger sales margins.
What is an example of a comparative advantage?
Comparative advantage is what you do best while also giving up the least . For example, if you’re a great plumber and a great babysitter, your comparative advantage is plumbing. That’s because you’ll make more money as a plumber.
What is the difference between comparative advantage and competitive advantage?
The key distinction is that while comparative advantage seeks to explain patterns and gains from trade, the competitive advantage explains which firms, industries or nations will be winners in a global competition and how they can position for it.
When a country has a comparative advantage in the production of a good?
Transcribed image text: When a country has a comparative advantage in the production of a good, it means that it can produce this good at a lower opportunity cost than its trading partner . Then the country will specialize in the production of this good and trade it for other goods.
Terms in this set (30) Comparative advantage is related most closely to which of the following? Opportunity Cost . When each person specializes in producing the good in which he or she has a comparative advantage, total production in the economy....
What is the difference between absolute advantage and comparative advantage which is the primary driver of international trade?
In the international trade, the absolute advantage indicates the ability of the economy to conduct tasks appropriately. The comparative advantage identifies the economy, which produces the goods with the lowest opportunity cost .
What are the four main sources of comparative advantage?
What are the Sources of Comparative Advantage? Comparative advantage is determined by a country’s resources, that is the land, labour, capital and enterprise .
Who has comparative advantage example?
For example, if a country is skilled at making both cheese and chocolate , they may determine how much labor goes into producing each good. If it takes one hour of labor to produce 10 units of cheese and one of of labor to produce 20 units of chocolate, then this country has a comparative advantage in making chocolate.
What are the disadvantages of comparative advantage?
Limitations of comparative advantage theory
Transport costs and tariffs and exchange rates may change the relative prices of goods and may distort comparative advantages. Imperfect competition may lead to prices being different to opportunity cost ratios.
What is the difference between absolute advantage and comparative advantage with examples?
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Is it possible to have a comparative advantage in the production of a good but not to have an absolute advantage?
It is not possible for a country to have a comparative advantage in all goods. However, a country can have an absolute advantage in all goods. ... It is in the best interest of countries to produce the goods and services in which they have the highest comparative advantage.
Is comparative advantage still relevant today?
Globalization, connectivity, trade liberalization, and technological innovation have all had a deep and lasting effect on international trade patterns and supply chain dynamics over the last 20 years.
