Comparative Advantage: The Driving Force of Specialization A. Assume for Namibia that the opportunity cost of each hut is 200 bowls. 1. a.1/5 chair for Mike and 1/3 chair for Sandy. (a) Fina... Visit the websites of three major local banks that you are familiar with. P. 54 b. Assume for the : 1486256. Absolute advantage is the driving force of specialization. Which of these pairs of points could be on the United States' production possibilities frontier? Comparative Advantage: The Driving Force of Specialization. a. Comparative Advantage Comparative advantage is an economy's ability to produce a particular good or service at a lower opportunity cost than its trading partners. P. 54 i. Def: Opportunity cost is whatever must be given up to obtain some item. 2. (200 huts, 30,000 bowls) and (150 huts, 35,000 bowls) b. NO PLAGIARISM. it would be impossible for Korea to have an absolute advantage over another country in both products. b.it would be impossible for Korea to have an absolute advantage over another country in both products. The concept of comparative advantage suggests that as long as two countries (or individuals) have different opportunity costs for producing similar goods, they can profit from specialization and trade. All countries only have a certain amount of resources available, so they always face trade-offs between the different goods. It follows that Bob will have a comparative advantage in the production of mustard. (200 huts, 40,000 bowls) and (150 huts, 30,000 bowls), c.(300 huts, 50,000 bowl) and (200 huts, 60,000 bowls), d.(300 huts, 60,000 bowls) and (200 huts, 80,000 bowls), 3. The theory of comparative advantage is attributed to political economist David Ricardo, who wrote the book Principles of … The driving force or determinants of a country’s comparative advantages include its natural resources, factors of production and the availability of technology (Bourdet, Gullstrand, & Olofsdotter, 2007). Rather than absolute advantage, comparative advantage is the driving force of specialization. c.it would be difficult for Korea to benefit from trade with another country if Korea is efficient in the production of both goods. It follows that Bob will have a comparative advantage in the production of mustard. (200 airplanes, 5,000 cars) and (150 airplanes, 4,000 cars), (200 airplanes, 10,000 cars) and (150 airplanes, 20,000 cars), (300 airplanes, 15,000 cars) and (200 airplanes, 25,000 cars), (300 airplanes, 25,000 cars) and (200 airplanes, 40,000 cars). Which of these pairs of points could be on Namibia's production possibilities frontier? Rather than absolute advantage, comparative advantage is the driving force of specialization. comparative advantage: the driving force of specialization; conclusion; a parable for the modern economy; interdependence and the gains from trade; the phillips’ cline; problems of classification and definition; should the united states trade with other countries; comparative advantage and trade Assume for the United States that the opportunity cost of each airplane is 100 cars. P. 54 i. Def: Opportunity cost is whatever must be given up to obtain some item. Assume for Namibia that the opportunity cost of each hut is 200 bowls. A country has comparative advantage if it can produce a good for less cost than any other nation. 1/5 chair for Mike and 1/3 chair for Sandy. Buy Now, OPPORTUNIlY COST AND COMPARATIVE ADVANTAGE, SHOULD THE UNITED STATES TRADE WITH OTHER COUNTRIES, A Macroeconomic Theory OF The Open Economy, Business Fluctuations and the theory of Aggregate Demand, Exchange Rates and the International Financial System, INVESTMENT CRITERIA AND CHOICE OF TECHNIQUES, PARTIAL EQUILIBRIUM AND GENERAL EQUILIBRIUM ANALYSIS, PRODUCTION POSSIBILITY CURVE AND PRODUCTION FUNCTION, Saving Investment and the Financial System, The Influence of Monetary and Fiscal Policy on Aggregate Demand, The Markets for the Factors of Production, The Short-Run Trade-off between Inflation and Unem loyment, Unemployment and the Foundations of Aggregate Supply. This increase in the size of the economic pie can be used to make everyone better off. By instead concentrating on the things you do the “most best” and exchanging or trading any excess of those things with someone else for the things that person does the “most best,” you can both be better off. The rancher’s explanation of the gains from trade though correct, poses a puzzle: If the rancher is better at both raising cattle and growing potatoes, how can the farmer ever specialize in doing what in does best? Comparative advantage is an economy's ability to produce a particular good or service at a lower opportunity cost than its trading partners. 10. If she must give up 14 bushels of corn to get 5 bushels of green beans, then her opportunity cost of 1 bushel of green beans is, 8. Comparative advantage is the driving force of specialization and trade. The rancher has an absolute advantage in the production of both potatoes and meat (20 min<60 min for meat, and 10 min<15min for potatoes). a. Mike and Sandy are two woodworkers who both make tables and chairs. If the opportunity cost of one bushel of corn is 3/5 bushel of green beans, then the opportunity cost of 1 bushel of green beans is, Mike and Sandy are two woodworkers who both make tables and chairs. Absolute advantage is the comparison among producers of a good according to their productivity. Comparative Adv. Comparative advantage refers to a situation in which two entities may produce similar products, yet one entity might have an advantage over the other due to lower production costs or other identified factors. 1/5 table for Mike and 1/3 table for Sandy. Comparative Advantage: The Driving Force of Specialization. THE DRIVING FORCE OF SPECIALIZATION By Unknown. In sum, the producer that has a smaller opportunity cost will have the comparative advantage. Self-interest is not necessary selfish some say. Comparative Advantage: The Driving Force of Specialization 1. Absolute advantage is found by comparing different producers' • a. locational and logistical circumstances. 2. Mike and Sandy are two woodworkers who both make tables and chairs. He gets his help from Sarina at his ... A company manufactures a portable electric generator. 7. What must be given up to obtain an item is called, 4. In fact self-interest likely includes an ... Robotics have attracted more attention in recent years. Which of the following could cause an increase in the budget deficit? Specialization and comparative advantage are separate but related concepts. When countries decide what products to specialize in, the essential question becomes who could produce the product at a lower opportunity cost. There are two possible answers, and in these two answers lie the solution to our puzzle and the key to understanding the gains from trade. Comparative Advantage and Trade. Definition of absolute advantage: the ability to produce a good using fewer inputs than another producer does. Comparative advantage the driving force of specialization o Absolute advantage from EC 120 at Wilfrid Laurier University Which of these pairs of points could be on Namibia's production possibilities frontier? To solve this puzzle, we need to look at the principle ofcomparative advantage . Absolute advantage is the driving force of specialization. Comparative advantage is a theory about the benefits that specialization and trade would bring, rather than a strict prediction about actual behavior. An important aspect that is omitted if we only look at absolute advantages is the presence of opportunity costs. FAQ 1/5 chair for Mike and 3 chairs for Sandy. Rather than absolute advantage, comparative advantage is the driving force of specialization. : Ability to produce a good with a lower opportunity cost. Given no other information, it follows that the farmer’s opportunity cost of a bushel of corn multiplied by his opportunity cost of a bushel of cotton, 6. As we know, these trade-offs are measured in opportunity costs. 200 Word Minimum. producing the good for which. … When each person specializes in producing the good for which he or she has a comparative advantage, total production in the economy rises. In one month, Mike can make 4 tables or 20 chairs, where Sandy can make 6 tables or 18 chairs. 2. 5 chairs for Mike and 1/3 chair for Sandy. ScholarOn, 10685-B Hazelhurst Dr. # 25977, Houston, TX 77043,USA. Figure 3.2 When countries decide what products to specialize in, the essential question becomes who could produce the product at a lower opportunity cost. b.1/5 chair for Mike and 3 chairs for Sandy. The opportunity cost of an item is. If they agree to trade 7 stereos for 4 computers, they are agreeing to 1.75 stereos per computer. (200 huts, 40,000 bowls) and (150 huts, 30,000 bowls) a.1/5 table for Mike and 1/3 table for Sandy. Comparative Advantage: The Driving Force of Specialization Absolute advantage is the comparison among producers of a good according to their productivity Opportunity Cost is whatever must be given up to obtain some item Opportunity Cost and Comparative Advantage Economists use the term compatative advantage when describing the opportunity cost of two producers with the producer who … Gains from Trade. Opportunity cost refers to what must be given up in order to obtain some item. d.always greater than the cost of producing the item. Given this, we know that the opportunity cost of 1 chair is. A farmer has the ability to grow either corn or cotton or some combination of the two. Producer 1 oz of Meat 1 oz of Potatoes. Absolute advantage is the driving force of specialization. Comparative Advantage: The Driving Force of Specialization It follows that Bob will have a comparative advantage in the production of mustard. Korea’s opportunity cost of shoes is the inverse of its opportunity cost of soccer balls. is the most important; because of specialization. Section 2. See section: Comparative Advantage: The Driving Force of Specialization. Suppose a gardener produces both green beans and corn in her garden. Self-sufficiency is one possibility, but it turns out you can do better and make others better off in the process. Opportunity Cost of Meat and Potatoes. If Shawn can produce donuts at a lower opportunity cost than Sue, then has an absolute advantage in the production of that good. In economics, a comparative advantage occurs when a country can produce a good or service at a lower opportunity cost than another country. If the rancher is better at.both raising cattle and growing potatoes, how can the farmer ever specialize in doing what he does best? Comparative Adv. Kindly login to access the content at no cost. If she must give up 14 bushels of corn to get 5 bushels of green beans, then her opportunity cost of 1 bushel of green beans is, Suppose a gardener produces both green beans and corn in her garden. Definition of absolute advantage: the ability to produce a good using fewer inputs than another producer does. Absolute Advantage 1. Briefly explain the concept of cafeteria-style or flexible compensation.... Jeff only shops for shoes at Men's Wearhouse. 2. About US (In practice, governments restrict international trade for a variety of reasons; under Ulysses S. Grant , the US postponed opening up to free trade until its industries were up to strength, following the example set earlier by Britain. 5 chairs for Mike and 3 chairs for Sandy. If Korea is capable of producing either shoes or soccer balls or some combination of the two, then. Given this, we know that the opportunity cost of 1 table is. Our Experts can answer your tough homework and study questions. The fanner doesn’t seem to do anything best. Rather than absolute advantage, comparative advantage is the driving force of specialization. Services b. Frank doesn’t seem to … Assume for the, Comparative Advantage: The Driving Force of Specialization Comparative Advantage: The Driving Force of Specialization A. b.1/5 table for Mike and 3 tables for Sandy. Some simple differences between the two would be, comparative advantage uses the driving force of specialization. (200 airplanes, 5,000 cars) and (150 airplanes, 4,000 cars), b. 1. 5. Farmer 4 oz Potatoes ¼ oz Meat. The factors of production are capital, land, and labor. The rancher has an absolute advantage in the production of both potatoes and meat (20 min<60 min for meat, and 10 min<15min for potatoes). A farmer has the ability to grow either corn or cotton or some combination of the two. When each person specializes in. 1. Korea should specialize in the product in which it has an absolute advantage. The fanner doesn’t seem to do anything best. a.Korea should specialize in the product in which it has an absolute advantage. Test bank Questions and Answers of Chapter 3: 2:sec 32 Mc Comparative Advantage the Driving Force of Specialization Absolute Advantage 1. Comparative Advantage: The Driving Force of Specialization a. Opportunity Cost and Comparative Advantage i. 3-2 Comparative Advantage: The Driving Force of Specialization. Comparative Advantage. c.5 chairs for Mike and 1/3 chair for Sandy. the number of hours that one must work in order to buy one unit of the item. In sum, the producer that has a smaller opportunity cost will have the comparative advantage. Given this, we know that the opportunity cost of 1 table is. Opportunity Cost and Comparative Advantage i. Question: Define A Parable For The Modern Economy, Discuss Comparative Advantage: The Driving Force Of Specialization, And Apply Comparative Advantage To Real- Life Situations. In one month, Mike can make 4 tables or 20 chairs, where Sandy can make 6 tables or 18 chairs. The traders decide on whether they should export or import goods depending on comparative advantages. Question In sum, the producer that has a smaller opportunity cost will have the comparative advantage. d.Korea’s opportunity cost of shoes is the inverse of its opportunity cost of soccer balls. This E-mail is already registered as a Premium Member with us. it would be difficult for Korea to benefit from trade with another country if Korea is efficient in the production of both goods. always greater than the cost of producing the item. When countries decide what products to specialize in, the essential question becomes who could produce the product at a lower opportunity cost. Cindy's opportunity cost of producing 1 computer is 2 stereos, and Dana's opportunity cost of producing 1 computer is 1 stereo. Upload Materials [30] ) Suppose a gardener produces both green beans and corn in her garden. always less than the dollar value of the item. 2. Specialization. (200 huts, 30,000 bowls) and (150 huts, 35,000 bowls), (200 huts, 40,000 bowls) and (150 huts, 30,000 bowls), (300 huts, 50,000 bowl) and (200 huts, 60,000 bowls), (300 huts, 60,000 bowls) and (200 huts, 80,000 bowls), What must be given up to obtain an item is called. Treasure Island: The Power of Trade. D. 16. Another advantage of specialization is that it saves time because if one keeps doing the same thing over and over again then he or she finds the shortcut way to do the thing which in turn results in a lot of saving of time. Rather than absolute advantage, comparative advantage is the driving force of specialization. The gains from specialization and trade are based not on absolute advantage but on comparative advantage. [av_button label='Get Any Economics Assignment Solved for US$ 55' link='manually,http://economicskey.com/buy-now' link_target='' color='red' custom_bg='#444444' custom_font='#ffffff' size='large' position='center' icon_select='yes' icon='ue859' font='entypo-fontello'], Home Assume for the United States that the opportunity cost of each airplane is 100 cars. Mike and Sandy are two woodworkers who both make tables and chairs. The theme is "making a difference" Assume for Namibia that the opportunity cost of each hut is 200 bowls. In one month, Mike can make 4 tables or 20 chairs, where Sandy can make 6 tables or 18 chairs. The farmer dosen’t seem to do anything best. c.5 tables for Mike and 1/3 table for Sandy. Which of these pairs of points could be on the United States' production possibilities frontier? a. trade allows for specialization b. trade has potential to benefit all nation c. trade allows nations to consume outside of their production possibilities curves. 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