The difference between absolute and comparative advantages .

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Answer 1

Question

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

Chapter 26, Problem 1QP

To determine

The difference between absolute and comparative advantages.

Expert Solution & Answer

Explanation of Solution

The concept of absolute advantage is based on the differences in labor cost and comparative advantage is based on the differences in opportunity cost. Suppose, country A (or individual) can produce a good or service at a lower cost than country B, then country A has an absolute advantage in the production of that commodity, and trade will take place on the basis of this absolute advantage. A comparative advantage in international trade occurs when the opportunity cost of producing a commodity in one country is less than the other. Suppose, the same country has an absolute advantage in the production of both the commodities, then the specialization of products is based on the comparative advantage, which will help both the countries to attain gain from the trade.

In the given example, Michelle Wie, the professional golfer and you can finish laundry and golf. Suppose, she uses less time to finish laundry and golf than that of you take. Here, Michelle has an absolute advantage in both golf and laundry. Then, Michelle hires you to do laundry because her opportunity of laundry is higher than that of you.

Economics Concept Introduction

Opportunity cost: Opportunity cost is the cost of a foregone alternative that is the loss of other alternative when one alternative is chosen.

Absolute advantage: It is the ability to produce a good using fewer inputs than another producer.

Comparative advantage: It refers to the ability to produce a good at a lower opportunity cost than another producer.

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Labor Market Data Price $5 $10 $15 $20 $25 3,000,000 6,000,000 9,000,000 12,000,000 15,000,000 Qd 15,000,000 12,000,000 9,000,000 6,000,000 3,000,000 Price $30 $25 $20 $15 $10 $5 + +- x- 3 6 Do + + F 9 12 15 Quantity (In millions) Area of a triangle = 1/2* base *height Market Efficiency & Total Surplus Worth Publishers SCENARIO: The state government is considering raising the minimum wage from $15 per hour to $20 per hour over the next 3 years. As an economic advisor to the governor, you have been asked to provide a recommendation on whether the minimum wage should be increased based on economic theory. Consider the labor market data provided. Prepare a brief report that: 1. Explains whether the labor market is currently efficient at the equilibrium wage of $15 per hour. How would you know? At equilibrium, what (dollar amount) is the Total Surplus this market provides? Show your rationale with numbers. 2. Analyzes the impact on total surplus in the market if the minimum wage is raised…

Answer 2

Question

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

Chapter 26, Problem 1QP

To determine

The difference between absolute and comparative advantages.

Expert Solution & Answer

Explanation of Solution

The concept of absolute advantage is based on the differences in labor cost and comparative advantage is based on the differences in opportunity cost. Suppose, country A (or individual) can produce a good or service at a lower cost than country B, then country A has an absolute advantage in the production of that commodity, and trade will take place on the basis of this absolute advantage. A comparative advantage in international trade occurs when the opportunity cost of producing a commodity in one country is less than the other. Suppose, the same country has an absolute advantage in the production of both the commodities, then the specialization of products is based on the comparative advantage, which will help both the countries to attain gain from the trade.

In the given example, Michelle Wie, the professional golfer and you can finish laundry and golf. Suppose, she uses less time to finish laundry and golf than that of you take. Here, Michelle has an absolute advantage in both golf and laundry. Then, Michelle hires you to do laundry because her opportunity of laundry is higher than that of you.

Economics Concept Introduction

Opportunity cost: Opportunity cost is the cost of a foregone alternative that is the loss of other alternative when one alternative is chosen.

Absolute advantage: It is the ability to produce a good using fewer inputs than another producer.

Comparative advantage: It refers to the ability to produce a good at a lower opportunity cost than another producer.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

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

Chapter 26, Problem 1QP

To determine

The difference between absolute and comparative advantages.

Expert Solution & Answer

Explanation of Solution

The concept of absolute advantage is based on the differences in labor cost and comparative advantage is based on the differences in opportunity cost. Suppose, country A (or individual) can produce a good or service at a lower cost than country B, then country A has an absolute advantage in the production of that commodity, and trade will take place on the basis of this absolute advantage. A comparative advantage in international trade occurs when the opportunity cost of producing a commodity in one country is less than the other. Suppose, the same country has an absolute advantage in the production of both the commodities, then the specialization of products is based on the comparative advantage, which will help both the countries to attain gain from the trade.

In the given example, Michelle Wie, the professional golfer and you can finish laundry and golf. Suppose, she uses less time to finish laundry and golf than that of you take. Here, Michelle has an absolute advantage in both golf and laundry. Then, Michelle hires you to do laundry because her opportunity of laundry is higher than that of you.

Economics Concept Introduction

Opportunity cost: Opportunity cost is the cost of a foregone alternative that is the loss of other alternative when one alternative is chosen.

Absolute advantage: It is the ability to produce a good using fewer inputs than another producer.

Comparative advantage: It refers to the ability to produce a good at a lower opportunity cost than another producer.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

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

Chapter 26, Problem 1QP

To determine

The difference between absolute and comparative advantages.

Expert Solution & Answer

Explanation of Solution

The concept of absolute advantage is based on the differences in labor cost and comparative advantage is based on the differences in opportunity cost. Suppose, country A (or individual) can produce a good or service at a lower cost than country B, then country A has an absolute advantage in the production of that commodity, and trade will take place on the basis of this absolute advantage. A comparative advantage in international trade occurs when the opportunity cost of producing a commodity in one country is less than the other. Suppose, the same country has an absolute advantage in the production of both the commodities, then the specialization of products is based on the comparative advantage, which will help both the countries to attain gain from the trade.

In the given example, Michelle Wie, the professional golfer and you can finish laundry and golf. Suppose, she uses less time to finish laundry and golf than that of you take. Here, Michelle has an absolute advantage in both golf and laundry. Then, Michelle hires you to do laundry because her opportunity of laundry is higher than that of you.

Economics Concept Introduction

Opportunity cost: Opportunity cost is the cost of a foregone alternative that is the loss of other alternative when one alternative is chosen.

Absolute advantage: It is the ability to produce a good using fewer inputs than another producer.

Comparative advantage: It refers to the ability to produce a good at a lower opportunity cost than another producer.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 26, Problem 1QP

To determine

The difference between absolute and comparative advantages.

Expert Solution & Answer

Explanation of Solution

The concept of absolute advantage is based on the differences in labor cost and comparative advantage is based on the differences in opportunity cost. Suppose, country A (or individual) can produce a good or service at a lower cost than country B, then country A has an absolute advantage in the production of that commodity, and trade will take place on the basis of this absolute advantage. A comparative advantage in international trade occurs when the opportunity cost of producing a commodity in one country is less than the other. Suppose, the same country has an absolute advantage in the production of both the commodities, then the specialization of products is based on the comparative advantage, which will help both the countries to attain gain from the trade.

In the given example, Michelle Wie, the professional golfer and you can finish laundry and golf. Suppose, she uses less time to finish laundry and golf than that of you take. Here, Michelle has an absolute advantage in both golf and laundry. Then, Michelle hires you to do laundry because her opportunity of laundry is higher than that of you.

Economics Concept Introduction

Opportunity cost: Opportunity cost is the cost of a foregone alternative that is the loss of other alternative when one alternative is chosen.

Absolute advantage: It is the ability to produce a good using fewer inputs than another producer.

Comparative advantage: It refers to the ability to produce a good at a lower opportunity cost than another producer.

Answer 6

Chapter 26, Problem 1QP

To determine

The difference between absolute and comparative advantages.

Expert Solution & Answer

Explanation of Solution

The concept of absolute advantage is based on the differences in labor cost and comparative advantage is based on the differences in opportunity cost. Suppose, country A (or individual) can produce a good or service at a lower cost than country B, then country A has an absolute advantage in the production of that commodity, and trade will take place on the basis of this absolute advantage. A comparative advantage in international trade occurs when the opportunity cost of producing a commodity in one country is less than the other. Suppose, the same country has an absolute advantage in the production of both the commodities, then the specialization of products is based on the comparative advantage, which will help both the countries to attain gain from the trade.

In the given example, Michelle Wie, the professional golfer and you can finish laundry and golf. Suppose, she uses less time to finish laundry and golf than that of you take. Here, Michelle has an absolute advantage in both golf and laundry. Then, Michelle hires you to do laundry because her opportunity of laundry is higher than that of you.

Economics Concept Introduction

Opportunity cost: Opportunity cost is the cost of a foregone alternative that is the loss of other alternative when one alternative is chosen.

Absolute advantage: It is the ability to produce a good using fewer inputs than another producer.

Comparative advantage: It refers to the ability to produce a good at a lower opportunity cost than another producer.

Answer 7

Chapter 26, Problem 1QP

To determine

The difference between absolute and comparative advantages.

Answer 8

Expert Solution & Answer

Explanation of Solution

The concept of absolute advantage is based on the differences in labor cost and comparative advantage is based on the differences in opportunity cost. Suppose, country A (or individual) can produce a good or service at a lower cost than country B, then country A has an absolute advantage in the production of that commodity, and trade will take place on the basis of this absolute advantage. A comparative advantage in international trade occurs when the opportunity cost of producing a commodity in one country is less than the other. Suppose, the same country has an absolute advantage in the production of both the commodities, then the specialization of products is based on the comparative advantage, which will help both the countries to attain gain from the trade.

In the given example, Michelle Wie, the professional golfer and you can finish laundry and golf. Suppose, she uses less time to finish laundry and golf than that of you take. Here, Michelle has an absolute advantage in both golf and laundry. Then, Michelle hires you to do laundry because her opportunity of laundry is higher than that of you.