Answered: The concept of comparative advantage is…

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter34: World Trade Equilibrium

Section: Chapter Questions

Problem 9E

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The concept of comparative advantage is used by both countries and companies. Use a two goods example and two countries or companies to explain the comparative advantage theory. Use this theory to justify if its worthwhile for countries or companies specialize.

Definition Video Definition Ability of a country to produce goods and services at a lower opportunity cost compared to other countries. Here, opportunity cost refers to the forgone units of one good in order to produce one more unit of another good. For example, the opportunity cost of producing good X in country A is 2Y and in country B is 1.25Y. Country B has a lower opportunity cost of producing good X than country A. Therefore, country B has a comparative advantage in the production of good X. Video

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