Using an example, calculate the price of labor and the price of capital by displaying diagrammatically two countries A and B. Also by using labor along the horizontal axis and capital along the vertical axis, identify their corresponding production and consumption points and the country having a comparative advantage?

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A: “Since you have posted a question with multiple sub-parts, we will solve first three sub-parts for…

Q: Suppose that each country completely specializes in the production of the good in which it has a…

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A: Comparative advantage is the abiity of the nation to produce the good at a lower opportunity cost.

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A: International trade: - it means the buying and selling of goods and services with other countries.

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Q: Suppose that each country completely specializes in the production of the good in which it has a…

A: In economics, the value of what you must give up in order to choose something else is referred to as…

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A: The opportunity cost is the value of next best alternative use of given resources.

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Q: 1. A) With the following data decide which country has comparative advantage for which good. Show…

A: Opportunity cost = what we sacrifice/what we get   Good X Good Y The opportunity cost of X…

Q: Can a nation’s comparative advantage change over time? What factors would make it change?

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Comparative Advantage and Absolute Advantage Analysis

The theory of absolute advantage was given by Adam Smith in the year 1776.