Table of Contents
What is a comparative advantage simple definition?
A person has a comparative advantage at producing something if he can produce it at lower cost than anyone else. Having a comparative advantage is not the same as being the best at something.
What was the evolution of comparative advantage?
In both country groups, comparative advantage has become weaker: productivity grew systematically faster in sectors that were initially at greater comparative disadvantage. These changes have had a significant impact on trade volumes and patterns, and a non-negligible welfare impact.
What is an example of comparative advantage?
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. Therefore, the United States enjoys a comparative advantage in the production of cloth.
What is comparative advantage according to Adam Smith?
Adam Smith helped to originate the concepts of absolute and comparative advantage in his book, An Inquiry into the Nature and Causes of the Wealth of Nations. Smith argued that countries should specialize in the goods they can produce most efficiently and trade for those goods they can’t produce as well.
What is a comparative advantage in economics?
comparative advantage, economic theory, first developed by 19th-century British economist David Ricardo, that attributed the cause and benefits of international trade to the differences in the relative opportunity costs (costs in terms of other goods given up) of producing the same commodities among countries.
What is the difference between absolute advantage and comparative advantage?
Absolute Advantage: The ability of an actor to produce more of a good or service than a competitor. Comparative Advantage: The ability of an actor to produce a good or service for a lower opportunity cost than a competitor.
Can comparative advantage change over time?
Comparative advantage is not a static concept – it may change over time. For example, nonrenewable resources can slowly run out, increasing the costs of production, and reducing the gains from trade. Countries can develop new advantages, such as Vietnam and coffee production.
How did absolute advantage evolve?
The concept of absolute advantage was developed by 18th-century economist Adam Smith in his book The Wealth of Nations to show how countries can gain from trade by specializing in producing and exporting the goods that they can produce more efficiently than other countries.
Did Adam Smith develop theory of comparative advantage?
Adam Smith, in his work The Wealth of Nations, was among the first to put in writing the theory of comparative advantage.
What is comparative advantage in economics quizlet?
Comparative advantage refers to the ability to produce goods and services at a lower opportunity COST, not necessarily at a greater volume.
What is the difference between absolute advantage and comparative advantage quizlet?
Absolute advantage is the ability to produce a good using fewer inputs than another producer, while comparative advantage is the ability to produce a good at a lower opportunity cost than another producer (reflecting the relative opportunity cost).
Why is comparative advantage more important than absolute advantage?
Comparative advantage helps in more effective decision-making for countries for resource allocation and production hence more beneficial for economies than an absolute advantage.
What causes comparative advantage changes?
Fluctuations in the exchange rate, which affect the relative prices of exports and imports and cause changes in demand from domestic and overseas customers. Import controls such as tariffs, export subsidies and quotas – these can be used to create an artificial comparative advantage for a country’s domestic producers.
What affects comparative advantage?
A major factor that affects comparative advantage is the country’s quality and quantity of the factors of production. For example, the natural availability of mineral resources like iron, gold, and copper is not something a country can change.
What is the importance of comparative advantage?
The benefit of comparative advantage is the ability to produce a good or service for a lower opportunity cost. A comparative advantage gives companies the ability to sell goods and services at prices that are lower than their competitors, gaining stronger sales margins and greater profitability.