Concept explainers
Reasons for experiencing
Introduction:
Comparative Advantage: The ability of the nations to produce goods at a lower
Explanation of Solution
Even ifneither of the countries has a comparative advantage, the trade increases the variety of goods and services available for consumers to choose from. Further, it helps to keep the domestic prices in check as the goods and services are imported from other countries are sold at the world prices. This will further lead to the more consumption and will help to boost the
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- When a country has a comparative advantage in the production of a good, it means that it can produce this good at a lower opportunity cost than its trading partner. Then the country will specialize in the production of this good and trade it for other goods.arrow_forwardAbsolute advantage only helps one country? True or Falsearrow_forwardEven if neither country had a comparative advantage, why might these countries still experience gains from trade? simple plus example pleasearrow_forward
- Under what conditions does comparative advantage lead to gains from trade?arrow_forwardSince many companies cut jobs or outsource overseas when they cannot compete with foreign companies, does that mean free trade is a bad idea and does not serve our interests?arrow_forwardWhich of the following BEST describes comparative advantage? Country A can produce a product at a lower opportunity cost than Country B Country A can produce more of a product than Country B Country A has a currency worth more than the currency of country B Country A uses a smaller amount of a resource to produce than Country Barrow_forward
- Think about your own interests, skills, and opportunities. In what areas do you potentially have a comparative advantage over your peers or co-workers? Are there goods or services you could provide to others more efficiently? How could you maximize your advantages to achieve positive gains from trade in your daily exchanges and relationships?arrow_forwardIf, using the same factors of production, France is able to produce more wine than England, France is said to enjoy a production advantage.arrow_forwardWhen two or more nations engage in free trade, how is the standard of living improved in the participating countries? goods become more expensive, demand rises, and output increases goods become cheaper, demand lowers, and output decreases goods become more expensive, demand lowers, output decreases goods become cheaper, demand rises, and output increasesarrow_forward
- In the past, comparative advantages have sometimes shifted from one nation to another. What factors do you think caused these shifts? Why? Was there anything a nation could have done to prevent an advantage from shifting to another nation?arrow_forwardExplain which product each of the countries should specialise in and export. Use the information relating to comparative advantage to support your answer.arrow_forwardHow does free trade influence the comparative advantage between countries?arrow_forward
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