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 comparative advantage based on quizlet?
Terms in this set (7)
The ability of an individual firm or country to produce a good or service at a lower opportunity cost than competitors . The highest valued alternative that must be given up to engage in an activity.
How is comparative advantage determined?
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.
On what assumption is the concept of comparative advantage based?
The Ricardian doctrine of comparative advantage is based on the following assumptions: (1) There are only two countries, say A and B. (2) They produce the same two commodities, X and Y (3) Tastes are similar in both countries. (4) Labour is the only factor of production.
How do you calculate comparative advantage example?
Taking this example, if countries A and B allocate resources evenly to both goods combined output is: Cars = 15 + 15 = 30; Trucks = 12 + 3 = 15, therefore world output is 45 m units. It is being able to produce goods by using fewer resources, at a lower opportunity cost, that gives countries a comparative advantage.
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.
When a country has a comparative advantage?
In economic terms, a country has a comparative advantage when it can produce at a lower opportunity cost than that of trade partners . While a country cannot have a comparative advantage in all goods and services, it can have an absolute advantage in producing all goods.
What is the difference between absolute advantage and comparative?
Absolute advantage refers to the uncontested superiority of a country or business to produce a particular good better. Comparative advantage introduces opportunity cost as a factor for analysis in choosing between different options for production diversification.
What is the difference between comparative advantage and absolute advantage Brainly?
Absolute advantage is a condition in which a country can produce particular goods at a lower cost in comparison to another country. On the other hand, comparative advantage is a condition in which a country produces particular goods at a lower opportunity cost in comparison to other countries.
When a country has a comparative advantage in the production of a good it means?
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.
Does comparative advantage still work?
Comparative advantage refers to the ability to produce goods and services at a lower opportunity cost, not necessarily at a greater volume or quality. Comparative advantage is a key insight that trade will still occur even if one country has an absolute advantage in all products .
What is theory of comparative cost?
The Comparative cost theory is the basis of international trade . It explains that “it pays countries to specialize in the production of those goods in which they possess greater comparative advantage or the least comparative disadvantage.”
What is the conclusion of comparative cost advantage theory?
The main conclusion of the theory of comparative advantages is that countries can gain always from trade because what matters are comparative advantages and not absolute advantages . Absolute advantage: a country’s ability to produce a good using fewer resources than the other.
What is a complementary advantage?
complementary advantage. When two regions specifically satisfy each other’s needs through exchange of raw materials and or finished goods .
Who has comparative advantage?
A person has a comparative advantage at producing something if he can produce it at lower cost than anyone else . Having a comparative advantage is not the same as being the best at something. In fact, someone can be completely unskilled at doing something, yet still have a comparative advantage at doing it!
What does the Heckscher Ohlin theory explain?
The Heckscher-Ohlin model is an economic theory that proposes that countries export what they can most efficiently and plentifully produce . ... It takes the position that countries should ideally export materials and resources of which they have an excess, while proportionately importing those resources they need.
