Answered: Explain how comparative advantage…

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter2: Scarcity And Opportunity Costs

Section: Chapter Questions

Problem 13E

See similar textbooks

Related questions

Concept explainers

Question

Explain how comparative advantage impacts a firm’s decision to engage in trade. Would a business’s decision to trade cause a change to its PPF? Provide specific reasoning to support your claims.

Definition Video Definition Ability of a country to produce goods and services at a lower opportunity cost compared to other countries. Here, opportunity cost refers to the forgone units of one good in order to produce one more unit of another good. For example, the opportunity cost of producing good X in country A is 2Y and in country B is 1.25Y. Country B has a lower opportunity cost of producing good X than country A. Therefore, country B has a comparative advantage in the production of good X. Video

Expert Solution

Step 1: Describe the problem

A country should concentrate on producing the goods or services that it can do so at a lower opportunity cost than other nations, according to the economic principle known as comparative advantage. This suggests that a country should deal with other countries for goods or services that it cannot produce as effectively while focusing on producing an item or service that it can manufacture more effectively than other nations.

Trending now

This is a popular solution!

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions