What is meant by comparative advantage?
What is meant by comparative advantage?
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 are some examples of comparative advantages?
In this example, the US makes 30 million cars and 10 million trucks, whilst Japan produces 25 million cars and 2.5 million trucks. The US has an absolute advantage in producing both cars and trucks. However, it has a comparative advantage in trucks. This is because it is better at producing them.
What does comparative disadvantage mean?
According to Comparative advantage even a country with a comparative disadvantage will gain from specialising in most efficient goods. According to Adam Smith (1776) Wealth of Nations, absolute advantage is the ability of a country to produce more than other countries but with less resources.
What are the advantages of comparative advantage?
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 and absolute advantage?
Absolute Advantage: The ability of an actor to produce more of a good or service than a competitor. Comparative Advantage: The ability of an actor to produce a good or service for a lower opportunity cost than a competitor.
How do you identify comparative advantage?
A country is said to have a comparative advantage if it produces a good or service with the lowest opportunity cost.
How do you do comparative advantage?
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.
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.
What is meant by comparative advantage quizlet?
Comparative advantage refers to the ability to produce goods and services at a lower opportunity COST, not necessarily at a greater volume.
