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.
How do you calculate comparative advantage in economics?
To calculate comparative advantage, you have to calculate the opportunity cost of each good or service. Step 1: Calculate the Opportunity Cost of Each Good from Each Country. We need to calculate the opportunity cost of 1 unit of iron ore from each country. China’s opportunity cost of 1 unit of iron ore.
What is a comparative advantage quizlet?
Comparative Advantage. The ability of an individual firm or country to produce a good or service at a lower opportunity cost than competitors. Opportunity Cost. The highest valued alternative that must be given up to engage in an activity. Sources of a comparative advantage.
What are the three steps of comparative advantage?
The simple three-step solution is this:
- Take the data given and put the opportunity cost into fraction form and simplify the fraction.
- Find the Lowest Common Denominator between the two fractions.
- Analyze to determine who gives up less of the good in the numerator to make the good in the denominator.
What are the three sources of comparative advantage?
What are the Sources of Comparative Advantage? Comparative advantage is determined by a country’s resources, that is the land, labour, capital and enterprise.
Can a country have comparative and absolute advantage?
A comparative advantage exists when a country can produce goods at lower opportunity cost compared to other countries. It is not possible for a country to have a comparative advantage in all goods. An absolute advantage exists when a country is simply the best (most efficient) in producing a product or service.
