Comparative Advantage Vs. Opportunity Costs

853 Words Nov 29th, 2014 4 Pages
Comparative advantage simply means a country or a firm is able to produce goods or services at the lowest opportunity cost. This means that the firm or country can produce a particular good at a cheaper rate. Based on this theory, the countries which specialize in the production of that have the lowest opportunity costs often bring about an increament in the economic welfare. Countries or firms tend to produce more while at the same time consuming less of the goods or services they have a comparative advantage (Ruffin, 2002).
The aspects of trade are always dynamic. When a particular country is producing a given good better than another country producing another different good (with the assumption that each demands for both goods), they would easily trade. However, a challenge comes when one country produces both goods in a better way than the other country. Such a shift in the aspects of trade focuses on the differences between the theory of comparative advantage versus opportunity costs (Ruffin, 2002).
The comparative advantage theory champions for the increased benefits with specialization. The countries which specialize in the production of certain goods they are perfect at producing will end up profiting in such venture. Consequently, the gains made by such firms or countries from the trade can be used to acquire goods they desire and do not produce. Comparative advantage will thus not only affect the types of goods produced but also the pricing of various goods…

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