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 comparative advantage and why is it important?
The benefit of comparative advantage is the ability to produce a good or service for a lower opportunity cost . A comparative advantage gives companies the ability to sell goods and services at prices that are lower than their competitors, gaining stronger sales margins and greater profitability.
What is comparative advantage example?
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.
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 is my 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 is an example of a country with a comparative advantage?
A contemporary example: China’s comparative advantage with the United States is in the form of cheap labor. Chinese workers produce simple consumer goods at a much lower opportunity cost. The United States’ comparative advantage is in specialized, capital-intensive labor.
What are the four main sources of comparative advantage?
Comparative advantage is determined by a country’s resources, that is the land, labour, capital and enterprise .
How do you know who has 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.
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 an example of absolute advantage and comparative advantage?
A country has an absolute advantage in those products in which it has a productivity edge over other countries; it takes fewer resources to produce a product. A country has a comparative advantage when a good can be produced at a lower cost in terms of other goods .
Who has a comparative advantage in producing cars?
Japan has a comparative advantage in producing cars, since it has a lower opportunity cost in terms of grain given up. The United States has a comparative advantage in producing grain, since it has a lower opportunity cost in terms of cars given up.
Which situation is the best example of opportunity cost?
It is the important concept in economics and also the relationship which is between choice and scarcity. A good example of opportunity cost is you can spend money and time on other things but you can not spend time reading books or the money in doing something which can help .
Which scenario is the best example of an opportunity cost?
The correct answer is a. A computer company produces fewer laptops to meet tablet demand . Opportunity cost defines the benefit obtained by having a commodity after forgoing some other commodity. In the problem statement, the computer company incurs an opportunity cost of laptops for tablets.
What is the law of comparative cost advantage?
What Is the Law of Comparative Advantage? The law of comparative advantage was developed by David Ricardo in 1817 to explain the reason behind international trade between countries even when one country’s businesses , factories, and workers are more efficient at producing every single good than the other country.
What are the assumptions of comparative advantage?
Assumptions of the Theory:
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.
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 .
