Terms in this set (18) comparative advantage is the key to determining specialization and trade. Countries have a comparative advantage in production when they can produce a good or service at a lower opportunity cost than other producers.
What factors give a nation a comparative advantage in production?
Factors Affecting Comparative Advantage
- Factors of Production. A major factor that affects comparative advantage is the country’s quality and quantity of the factors of production.
- Exchange Rate. Movements in exchange rates affect the prices of imported and exported goods.
- Inflation.
- Trade Barriers.
What does it mean for a nation to have an absolute advantage in the production of a good?
Absolute advantage is when a producer can produce a good or service in greater quantity for the same cost, or the same quantity at a lower cost, than other producers. Absolute advantage can be the basis for large gains from trade between producers of different goods with different absolute advantages.
Which country has a comparative advantage in the production of shirts?
From (a) above, we note that China has a comparative advantage in shirt production (to get an additional shirt, China needs to give up a fewer number of computers than America).
What do economists mean when they say a country has a comparative advantage in the production of a particular good?
What do economists mean when they say a country has a comparative advantage in the production of a particular good? That the country can produce the good at a lower opportunity cost than other countries. it can produce athletic shoes at a lower opportunity cost than the other country.
When does a country have a comparative advantage?
In economics, a comparative advantage occurs when a country can produce a good or service at a lower opportunity cost Opportunity Cost Opportunity cost is one of the key concepts in the study of economics and is prevalent throughout various decision-making processes.
How are productivity differences related to comparative advantage?
Comparative advantage is determined by differences in the labour hours requires to produce each good. In Ricardo’s theory, differences in the productivity of labour accounted for comparative advantage. Following Ricardo, economists have argued that productivity differences account for comparative advantage.
How are supply factors related to comparative advantage?
All the theories of comparative advantage have been based on supply factors. However, the demand side of the market can also explain some of the patterns observed in international trade. Seldom are different producers’ goods exactly identical.
Who is the author of the theory of comparative advantage?
The opportunity cost is the value of the next best alternative foregone. than another country. The theory of comparative advantage is attributed to political economist David Ricardo, who wrote the book Principles of Political Economy and Taxation (1817).
