# Comparative advantage and opportunity cost pdf

Posted on Tuesday, May 11, 2021 6:30:01 PM Posted by Peter J. - 11.05.2021

File Name: comparative advantage and opportunity cost .zip

Size: 1896Kb

Published: 11.05.2021

Actively scan device characteristics for identification.

What happens to the possibilities for trade if one country has an absolute advantage in everything? This is typical for high-income countries that often have well-educated workers, technologically advanced equipment, and the most up-to-date production processes. These high-income countries can produce all products with fewer resources than a low-income country. If the high-income country is more productive across the board, will there still be gains from trade?

So in an output table, we would look at country A and we would look at country B and we would think about, well, what is the max, and I'll just draw it, what is the max basketballs and this is all per worker per day and we would also think what is the max shoes, shoes, those look like socks, but you get the idea, once again, per worker per day and so let me draw a little chart here, so we can do that and so what I'd like you to do is pause this video and see if you can fill in this chart, what is the maximum basketballs per worker per day in country A and then in country B and then do the same thing for shoes.

Now with the information about the output table and these production possibility curves, let's calculate the opportunity cost, so let me set up another table and let me just say this is going to be our opportunity cost table, OC, not Orange County, opportunity costs and once again, it's going to be for country A and country B and we're gonna think about the opportunity costs of producing basketballs and that's gonna be in terms of pairs of shoes and then the opportunity costs for producing pairs of shoes and that's going to be in terms of basketballs and so let me set up another table and so I encourage you once again, pause this video and see if you can fill in this table, what is the opportunity costs?

Well, six over eight is the same thing as three fourths or three fourths of a pair of shoes, so one basketball costs three fourths of a pair of shoes or we could say that as 0. Now let's do the opportunity cost for a pair of shoes in either country, well, there's a couple of ways to think about it, you could just view it as the reciprocal or you could even go back to this equation right over here, if we are in country A, we would say six shoes, if we put all our energy in shoes, we could produce six of them or six pairs of shoes, I should say and if we put all of our energy into basketballs, we could produce eight basketballs, but if you divide by six, you get per pair of shoes and so per each pair of shoes, the energy to produce one pair of shoes is equivalent to the energy to produce eight sixths of a basketball and eight sixths is the same thing as four thirds of a basketball and if we wanted to write it as a decimal just for simplicity or maybe to make it easier to compare, we would say that this is approximately 1.

Well, in country B we could set up a similar type of equation, where the same energy for four shoes, I could produce four basketballs and that's essentially what we set up right over here on the left, you divide both sides by four, the energy of a shoe is equal to the energy of a basketball, or I should say the energy of a pair of shoes is equal to the energy of making a basketball, so the opportunity cost of making a pair of shoes is equal to one basketball.

So now we're ready to draw the connection, given the opportunity costs that we calculated, what country has the comparative advantage in basketballs? Pause this video and try to figure it out. So now let's look at the opportunity cost of producing a basketball in either country. Up Next.

## Opportunity cost and comparative advantage using an output table

Countries benefit when they specialize in producing goods for which they have a comparative advantage and engage in trade for other goods. International trade is the exchange of capital, goods, and services across international borders or territories. Trading-partners reap mutual gains when each nation specializes in goods for which it holds a comparative advantage and then engages in trade for other products. In other words, each nation should produce goods for which its domestic opportunity costs are lower than the domestic opportunity costs of other nations and exchange those goods for products that have higher domestic opportunity costs compared to other nations. International Trade : Countries benefit from producing goods in which they have comparative advantage and trading them for goods in which other countries have the comparative advantage.

Opportunity cost measures a trade-off. A nation with a comparative advantage makes the trade-off worth it. The country may not be the best at producing something. But the good or service has a low opportunity cost for other countries to import. A lot of the raw ingredients are produced in the oil distillery process. Another example is India's call centers.

Comparative advantage is what a country produces for the lowest opportunity cost. It differs from absolute and competitive advantage.

The law of comparative advantage describes how, under free trade , an agent will produce more of and consume less of a good for which they have a comparative advantage. In an economic model , agents have a comparative advantage over others in producing a particular good if they can produce that good at a lower relative opportunity cost or autarky price, i. Instead, one must compare the opportunity costs of producing goods across countries [4].

Ложь подействовала: бедняга даже вспотел. - Че-че-го же вы хотите? - выдавил он заикаясь.  - Я ничего не знаю.

#### COMMENT 5

• If you're seeing this message, it means we're having trouble loading external resources on our website. Madeleine A. - 13.05.2021 at 13:10
• In other words, there is an increasing opportunity cost associated with increasing specialisation. For example, it may be that the maximum output of cars produced​. Liz L. - 16.05.2021 at 12:52
• absolute advantage in producing that good. • Comparative advantage: The person or country that has the smaller opportunity cost of producing a good is said to. Byron M. - 16.05.2021 at 15:47
• It can be argued that world output would increase when the principle of comparative advantage is applied by countries to determine what goods and services they should specialise in producing. Kai H. - 17.05.2021 at 06:59
• When comparing the opportunity cost of 1 cloth for both France and the United States, we can see that the opportunity cost of cloth is lower in the United States. Geordie B. - 20.05.2021 at 10:06