Answered: Explain the difference between absolute…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Explain the difference between absolute advantage and comparative advantage. Which is the basis for international trade, and why? The graph below represents the market for sugar in the U.S. The domestic supply and demand curves are drawn, the world price for sugar is indicated, and the effect of a tariff the US is imposing on sugar imports is shown. Use the graphic to calculate consumer surplus, producer surplus, economics surplus, government revenue, and deadweight loss. Do so under each of the following three situations: 1) no trade, 2) free trade, and 3) the sugar tariff. A friend tells you the following: “Free trade sounds good, but a country like Honduras doesn’t have any comparative advantage compared to the United States. Therefore, trade with us will exploit them and make their economic situation worse.” Explain to your friend the error in his thinking.

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Absolute advantage alludes to the a firm's, individual or a country's capacity to create a more prominent amount of labor and products than it's rivals utilizing similar measure of assets.

Comparative advantage depends on the open door cost where on firm individual or a nation creates a decent or service, the opportunity cost of delivering which is not exactly different labor and products.
Model France can create 10 cheddar and 20 wines though Italy can deliver 8 cheddar and 14 wines.

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