Table 1: Foundations of Comparative Advantage Analysis Approaches Key Concept(s) Mechanism(s) This is a driving force in specialisation. [31] ) Comparative Advantage: Comparative advantage is an essential driving force of specialization. Cindy's opportunity cost of producing 1 computer is 2 stereos, and Dana's opportunity cost of producing 1 computer is 1 stereo. Now, let’s suppose that they concentrate the work force where they have what Ricardo called a comparative advantage and we’ll get into more of that. Comparative Advantage: The Driving force of Specialization. For example, nonrenewable resources can slowly run out, increasing the costs of production, and reducing the gains from trade. The rancher has an absolute advantage in the production of both potatoes and meat (20 min learning objectives. Absolute advantage is the driving force of specialization? A)4 pies and 6 tarts B)6 pies and 5 tarts C)8 pies and 3 tarts D)10 pies and 1.5 tarts It has an absolute advantage in food and an absolute advantage in clothing. Expert Answer . • d. input requirements per unit of output. Specialization can take place at any level in any economy. • b. payments to land, labor, and capital. The advantage of specialisation does no come from any differences between the factor endowments but from that fact that each country producing a lot of one thing may be more efficient than them producing lesser amounts of many things. • e. Comparative advantage is the driving force of specialization. As Courant and Deardorff (1992) have shown, the unevendistribution of factor endowments across regions within a countryhas implica- The farmer doesn’t seem to do anything best. • e. opportunity costs. Summarize the history of international trade agreements. Countries can develop new advantages, such as Vietnam and coffee production. (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. Because interdependence is so prevalent in the modern world, the principle of comparative advantage has many applications. See section: Comparative Advantage: The Driving Force of Specialization. It could be workers in a single factory specializing in one part of a production process all the way up to one country focusing on producing one type of good that they are best at. Given this, we know that the opportunity cost of 1 chair is. II. Which of these pairs of points could be on Namibia's production possibilities frontier? 1. 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. Then the country will specialize in the production of this good and trade it for other goods. Comparative Advantage. Trade allows specialization based on comparative advantage and thus undoes this constraint, enabling each person to consume more than each person can produce. APPLICATIONS OF COMPARATIVE ADVANTAGE. Comparative advantage is not a static concept – it may change over time. Comparative advantage is a theory about the benefits that specialization and trade would bring, rather than a strict prediction about actual behavior. After trade, the world market price (the price an international consumer must pay to purchase a good) of both goods will fall between the opportunity costs of both countries. To comparative advantage. The country may not be the best at producing something. Rather than absolute advantage, comparative advantage is the driving force of specialization. Opportunity cost refers to what must be given up in order to obtain some item. The factors of production are capital, land, and labor. 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. 2. Economies of Scale Xiaokai Yang Received October 19, 1992; revised version received April 22, 1994 This paper draws the distinctions between the concepts of endogenous and exogenous comparative advantages and between the concepts of economies of specialization and scale. Comparative advantage is when a country produces a good or service for a lower opportunity cost than other countries. Definition of absolute advantage: the ability to produce a good using fewer inputs than another producer does. a. Specialization and comparative advantage are separate but related concepts. Endogenous Comparative Advantage Andrea Moro, Vanderbilt University, Nashville TN 37235 (USA), andrea@andreamoro.net Peter Norman, University of North Carolina at Chapel Hill, Chapel Hill NC 27599 (USA), normanp@email.unc.edu March 2, 2018 Abstract We develop a model of trade between identical countries. Opportunity cost measures a trade-off. 3. Rather than absolute advantage, comparative advantage is the driving force of specialization. April 24, 2008 Sree Rama Rao Finance Management. Show transcribed image text. gion. Additionally, the country will invest all its resources in the most competitive industries at disposal. NO PLAGIARISM. If they agree to trade 7 stereos for 4 computers, they are agreeing to 1.75 stereos per computer. Comparative advantage, which, to a certain extent, is determined by differences in factor endowments, was the main driving force behind this specialization (Huang and Li 2007; Liang and Xu, 2004). Shawn has a comparative advantage in the production of doughnuts. International trade largely dictates specialization at the macroeconomic level. True or False. Globalization has … In sum, the producer that has a smaller opportunity cost will have the comparative advantage. The traders decide on whether they should export or import goods depending on comparative advantages. So they specialize at what they are … Well, let’s do it this way. 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 he does best? The historical development of economic though in comparative advantage is detailed in Table 1 with some of the key elements. The benefits of buying its good or service outweigh the disadvantages. Here are two examples, one fanciful and one of great practical importance. Rather than absolute advantage, comparative advantage is the driving force of specialization. • c. terms of trade. Compare Japan’s advantages. Rose has an absolute advantage in the production of both potatoes and meat. Discuss how countries determine which goods to produce and trade Specialization refers to the tendency of countries to specialize in certain products which they trade for other goods, rather than producing all consumption goods on their own. Refer to Figure 3-17.Suppose Daisy is willing to trade 3/4 tart to Maxine for each pie that Maxine makes and sends to Daisy.Which of the following combinations of pies and tarts could Maxine not then consume,assuming Maxine specializes in making pies and Daisy specializes in making tarts? Opportunity Cost and Comparative Advantage 1. Comparative advantage has influenced the way economies work from the time that countries first started trading with each other many centuries ago. Specialization and trade 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. In which [00:20:00] would you say it has the greater advantage? B. Drawing on Adam Smith and the work of James Buchanan, Yong Yoon, and Paul Romer, Russ Roberts argues that we’ve neglected the role of the size of the market in creating incentives for specialization and wealth creation via trade. When countries decide what products to specialize in, the essential question becomes who could produce the product at a lower opportunity cost. 2. Comparative advantage not only affects the production decisions of trading nations, but it also affects the prices of the goods involved. Absolute Advantage 1. If both of them focus on producing the goods with lower opportunity costs, their combined output will increase and all of them will be better off. Comparative advantage the driving force of specialization o Absolute advantage from EC 120 at Wilfrid Laurier University A comparison between the … which of following statement is not correct ? False. 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. When a country specialises according to its comparative advantage, it gains an increase in real income and consequent rise in the standard of living of its people J.S. Economists have focused on David Ricardo’s idea of comparative advantage as the source of specialization and wealth creation from trade. The following graphs show the production possibilities frontiers (PPFs) for Maldonia and Desonia. Specialization and trade are closely linked to. 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). 2. If Shawn can produce donuts at a lower opportunity cost than Sue, then what should happen? December 23, 2013 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? always greater than the cost of producing the item. d. absolute advantage is the driving force of specialization Relationship Between Specialization and Trade. Use opportunity cost to explain the rationale for specialization and trade. Absolute advantage is the driving force of specialization. 200 Word Minimum. Endogenous vs. Exogenous Comparative Advantage and Economies of Specialization vs. Correction: Comparative advantage is. THE DRIVING FORCE OF SPECIALIZATION By Unknown. The concept of comparative advantage based on David Ricardo (1817) is one of the oldest international trade theory (Ricardo, 2007). Comparative Advantage: The Driving Force of Specialization a. always greater than the cost of producing the item. Comparative advantage is the driving force of specialization and trade. What is a Comparative Advantage? The principle of comparative advantage explains interdependence and the gains from trade. List the common protectionist policies. This problem has been solved! Comparative Advantage: The Driving Force of Specialization A. A nation with a comparative advantage makes the trade-off worth it. The farmer dosen’t seem to do anything best. Absolute advantage is found by comparing different producers' • a. locational and logistical circumstances. Test bank Questions and Answers of Chapter 3: 2:sec 32 Mc Comparative Advantage the Driving Force of Specialization In economics, a comparative advantage occurs when a country can produce a good or service at a lower opportunity cost Opportunity Cost Opportunity cost is one of the key concepts in the study of economics and is prevalent throughout various decision-making processes. The than another country. See the answer.
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