Explanation Comparative advantage is a category of natural advantage which is indirect and does not show up in the P&L sheet. It can be due to natural factors like geographical advantage leading to lower cost of production, a weak local currency or lower rate of taxes compared to peers in same industries elsewhere. One of such intrinsic factor of production is the "cost of opportunity". This means that to produce a unit of this particular commodity you are sacrificing other units of commodity which could have been produced by you under the same prevailing conditions. If you can produce more of the alternative commodity at lower price (with same direct expenses required when you are manufacturing the current goods), then it would be better to produce that alternative goods, because its final price would be lower...

10th Edition

ISBN: 9781285859460

Author: BOYES, William

Publisher: Cengage Learning

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Comparative Advantage and Absolute Advantage Analysis

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

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 2, Problem 13E

To determine

The option with regards to comparative advantage that correctly fills in the blank

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Chapter 2 Solutions

Economics:

Ch. 2 - Prob. 1E Ch. 2 - Prob. 2E Ch. 2 - Prob. 3E Ch. 2 - Prob. 4E Ch. 2 - Prob. 5E Ch. 2 - Prob. 6E Ch. 2 - Prob. 7E Ch. 2 - Prob. 8E Ch. 2 - Prob. 9E Ch. 2 - Prob. 10E

Ch. 2 - Prob. 11E Ch. 2 - Prob. 12E Ch. 2 - Prob. 13E Ch. 2 - Prob. 14E Ch. 2 - Prob. 15E Ch. 2 - Prob. 16E

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