The Market

1000 Words4 Pages
The Market 1. Explain the concepts of Comparative and Absolute Advantage. Having absolute advantage is the way to go; this is a win, win situation. For a country or company to have absolute advantage is a dream made in heaven. It is like winning a million dollars at poker while betting only five bucks. This is the perfect situation where the production of goods is being produced at a lower cost, but with the same resources. Absolute Advantage can also be achieved by having a higher productivity with fewer labor resources. Ten workers produce the same five high quality cars than 15 workers in an eight hour day; or 15 workers produce the same five high quality cars in four hours. Comparative advantage is a little trickier. Here you have to do the math or analyze which country or company has the best opportunity cost. In other words, in order for a country or company to have a Comparative advantage, their production goods have to be produced at a lower opportunity cost relative to another company or country. 2. In this case, which country should produce potatoes? Why? When I took a look at the unit numbers of the USA and Canada, everything looked very simple and self explanatory, with the USA producing potatoes and Canada rice. However, this was not the case; when you calculate the Opportunity Cost for both of the countries, the results were surprising. This is not what you would expect; in this case, Canada is the country that will produce potatoes. In order to look
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