Answered: To obtain good A in which one does not…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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34. To obtain good A in which one does not have a comparative advantage, it is better to acquire it by "indirect production" – producing good B, in which one does have a comparative advantage, and trading it for good A.

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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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Law of comparative cost advantage explains how trade can be beneficial for both the Nations if one country has absolute disadvantage in the production of both the goods.

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