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Explain how absolute advantage differs from comparative advantage. (4 marks)
The difference between absolute advantage and comparative advantage is that while the former refers to the ability to produce a good using fewer inputs than another producer, the latter refers to the ability to produce a good at a lower opportunity cost than their producer.
In other words, the producer that requires a smaller quantity of inputs to produce a good is said to have an absolute advantage in producing that good.
Similarly, the producer who gives up less of other goods to produce good X has the smaller opportunity cost of producing good X and is said to have a comparative advantage in producing it.
Absolute advantage is input-based while comparative advantage is opportunity cost-based.
2. Use the following table to determine the absolute advantage and comparative advantage of China and the United States in producing wheat and textiles. Explain your answers.
The following are correct statements about Comparative and Absolute Advantage, EXCEPT: a) Absolute Advantage means being able to produce more with the same economic resources. b) Comparative Advantage means being able to produce with the lowest opportunity cost. c) Absolute Advantage does not imply Comparative Advantage. d) Efficiency and Optimality can be attained if we specialize and trade according to our Absolute Advantages. (The answer is not C)
What does the term "absolute advantage" mean? What is the “principle of comparative advantage”? Explain why the principle of comparative advantage is relevant to international trade policy. Is everyone better off when trading is allowed?
How do you calculate absolute and comparative advantage
How do the theories of absolute advantage and comparative advantage differ? During which centuries were this two theories developed and by whom?
Define absolute and comparative advantages. Give an example in which one person has an absolute advantage in doing something but another person has a comparative advantage.
1. Absolute advantage and comparative advantage A AaB Suppose you have the following information on the marginal product of labor in rice production and apparel production in Japan and Thailand: Marginal Product of Labor Thailand Rice (bushels per hour) Apparel (units per hour) Complete the following table by computing opportunity costs of each good in terms of units of another good for both countries: Japan Thailand Opportunity cost of rice (units of apparel per bushel) Opportunity cost of apparel (bushels...
Economic theory suggests that international trade is primarily due to absolute advantage. strategic advantage. comparative advantage. technical advantage.
9. Comparative advantage is defined in terms of: efficiency. absolute advantage. opportunity cost. specialization. 10. David can wash four cars in one hour or cut two lawns. Ralph can wash three cars in one hour or cut two lawns. David's opportunity cost for cutting one lawn is car washes, and Ralph's opportunity cost for cutting one lawn is car washes. a. 2; 1.5 4; 3.5 1.5; 2 d. 3.5; 4 11. Gains from trade are based on rather than: opportunity...
7. Given the following production possibilities for the two countries, identify the comparative advantage and absolute advantage for clocks and cars by each country. Who buys cars and who sells the cars? Show your work. 8. One trade-off society faces is between efficiency and equity. Define each term. If the U.S. government redistributes income from the rich to the poor, explain how this action affects equity as well as efficiency in the economy.