Answered: a. Explain how comparative advantage…

Economics Today and Tomorrow, Student Edition

1st Edition

ISBN:9780078747663

Author:McGraw-Hill

Publisher:McGraw-Hill

Chapter18: Trading With Other Nations

Section18.1: The Benefits Of World Trade

Problem 1R

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Question 1

a. Explain how comparative advantage and opportunity cost affect trade.

b. In your opinion, state if you believe whether or not a country can have a comparative advantage in all goods.

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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