Assume for the United States that the opportunity cost of each airplane is 100 cars. Comparative Advantage: The Driving Force of Specialization A. Suppose a gardener produces both green beans and corn in her garden. An important aspect that is omitted if we only look at absolute advantages is the presence of opportunity costs. 5. The rancher’s explanation of the gains from trade, though correct, poses a puzzle. In sum, the producer that has a smaller opportunity cost will have the comparative advantage. A farmer has the ability to grow either corn or cotton or some combination of the two. Suppose a gardener produces both green beans and corn in her garden. To solve this puzzle, we need to look at the principle of comparative advantage. 1. Question Section 2. Farmer 4 oz Potatoes ¼ oz Meat. Comparative Advantage: The Driving Force of Specialization A. Comparative advantage has influenced the way economies work from the time that countries first started trading with each other many centuries ago. (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. This E-mail is already registered with us. Mike and Sandy are two woodworkers who both make tables and chairs. THE DRIVING FORCE OF SPECIALIZATION By Unknown. Absolute Advantage 1. Kindly login to access the content at no cost. (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. a. it would be impossible for Korea to have an absolute advantage over another country in both products. Comparative Advantage: The Driving Force of Specialization. 5 tables for Mike and 3 tables for Sandy. In sum, the producer that has a smaller opportunity … 200 Word Minimum. Comparative Advantage. NO PLAGIARISM. d. absolute advantage is the driving force of specialization Assume for the : 1486256. Gains from Trade. 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. Frank doesn’t seem to … 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. Self-sufficiency is one possibility, but it turns out you can do better and make others better off in the process. 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 rancher has an absolute advantage in the production of both potatoes and meat. When each person specializes in producing the good for which he or she has a comparative advantage, total production in the economy rises. Opportunity Cost and Comparative Advantage i. Which of the following could cause an increase in the budget deficit? Which of these pairs of points could be on Namibia's production possibilities frontier? 2. : Ability to produce a good with a lower opportunity cost. Comparative advantage is an economy's ability to produce a particular good or service at a lower opportunity cost than its trading partners. (200 huts, 30,000 bowls) and (150 huts, 35,000 bowls), b. This increase in the size of the economic pie can be used to make everyone better off. Which of these pairs of points could be on Namibia's production possibilities frontier? d.always greater than the cost of producing the item. FAQ If Shawn can produce donuts at a lower opportunity cost than Sue, then has an absolute advantage in the production of that good. • b. payments to land, labor, and capital. 2. always greater than the cost of producing the item. Our Experts can answer your tough homework and study questions. (a) Fina... Visit the websites of three major local banks that you are familiar with. P. 54 b. more In one month, Mike can make 4 tables or 20 chairs, where Sandy can make 6 tables or 18 chairs. Mike and Sandy are two woodworkers who both make tables and chairs. 10. Services If you do everything better than anyone else, should you be self-sufficient and do everything yourself? The factors of production are capital, land, and labor. Cindy's opportunity cost of producing 1 computer is 2 stereos, and Dana's opportunity cost of producing 1 computer is 1 stereo. Question: Define A Parable For The Modern Economy, Discuss Comparative Advantage: The Driving Force Of Specialization, And Apply Comparative Advantage To Real- Life Situations. Producer 1 oz of Meat 1 oz of Potatoes. Comparative Advantage: The Driving Force of Specialization a. 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? Given this, we know that the opportunity cost of 1 chair is. 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). The farmer dosen’t seem to do anything best. Which of these pairs of points could be on Namibia's production possibilities frontier? Absolute advantage is the driving force of specialization. Kindly login to access the content at no cost. Which of these pairs of points could be on the United States' production possibilities frontier? About US As a first step in developing this principle, consider the following question. 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. Opportunity Cost of Meat and Potatoes. Part I. Rather than absolute advantage, comparative advantage is the driving force of specialization. Rather than absolute advantage, comparative advantage is the driving force of specialization. Absolute Advantage 1. Exporting is a form of international trade which allows for specialization, but can be difficult depending on the transaction. COMPARATIVE ADVANTAGE: THE DRIVING FORCE OF SPECIALIZATION. 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). This E-mail is already registered as a Premium Member with us. a.Korea should specialize in the product in which it has an absolute advantage. Assume for the, Comparative Advantage: The Driving Force of Specialization 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. 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. Absolute advantage is the driving force of specialization. Comparative advantage is determined by which person or group of persons can produce a given quantity of a good using the fewest resources. In our example, who can produce potatoes at lower cost the farmer or the rancher? Some simple differences between the two would be, comparative advantage uses the driving force of specialization. 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. 1. 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. Rancher 2 oz Potatoes ½ oz Meat. Comparative Advantage: The Driving Force of Specialization 1. (200 airplanes, 5,000 cars) and (150 airplanes, 4,000 cars), b. As a first step in developing this principle, consider the following question: In the our example, who can produce potatoes at lower cost the farmer or the rancher? 5 chairs for Mike and 3 chairs for Sandy. Treasure Island: The Power of Trade. In sum, the producer that has a smaller opportunity cost will have the comparative advantage. c.it would be difficult for Korea to benefit from trade with another country if Korea is efficient in the production of both goods. a. Why? [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 c.5 tables for Mike and 1/3 table for Sandy. Mike and Sandy are two woodworkers who both make tables and chairs. a. If they agree to trade 7 stereos for 4 computers, they are agreeing to 1.75 stereos per computer. 1/5 chair for Mike and 3 chairs for Sandy. Self-interest is not necessary selfish some say. 2. b.it would be impossible for Korea to have an absolute advantage over another country in both products. which of following statement is not correct ? ... To solve this puzzle, we need to look at the principle of comparative advantage. 7. 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. Trade allows specialization based on comparative advantage and thus undoes this constraint, enabling each person to consume more than each person can produce. Comparative advantage the driving force of specialization o Absolute advantage from EC 120 at Wilfrid Laurier University is the most important; because of specialization. Rose’s explanation of the gains from trade, though correct, poses a puzzle: If Rose is better at both raising cattle and growing potatoes, how can Frank ever specialize in doing what he does best? Definition of absolute advantage: the ability to produce a good using fewer inputs than another producer does. The Seemingly Simple Story of Comparative Advantage, by Russ Roberts on Econlib. (200 huts, 30,000 bowls) and (150 huts, 35,000 bowls) b. When each person specializes in. 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 … In fact self-interest likely includes an ... Robotics have attracted more attention in recent years. Rather than absolute advantage, comparative advantage is the driving force of specialization. The fanner doesn’t seem to do anything best. P. 54 b. Comparative advantage is the driving force of specialization and trade. The traders decide on whether they should export or import goods depending on comparative advantages. d.5 chairs for Mike and 3 chairs for Sandy. What must be given up to obtain an item is called, 4. Rather than absolute advantage, comparative advantage is the driving force of specialization. All countries only have a certain amount of resources available, so they always face trade-offs between the different goods. ScholarOn, 10685-B Hazelhurst Dr. # 25977, Houston, TX 77043,USA. 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. Shawn has a comparative advantage in the production of donuts. (200 huts, 40,000 bowls) and (150 huts, 30,000 bowls) Specialization and comparative advantage are separate but related concepts. Absolute advantage is the comparison among producers of a good according to their productivity. 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, If Korea is capable of producing either shoes or soccer balls or some combination of the two, then. 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. Given this, we know that the opportunity cost of 1 chair is. The gains from specialization and trade are based not on absolute advantage but on comparative advantage. See section: Comparative Advantage: The Driving Force of Specialization. 1. (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). 5 chairs for Mike and 1/3 chair for Sandy. Comparative Advantage: The Driving Force of Specialization a. a.1/5 table for Mike and 1/3 table for Sandy. Given this, we know that the opportunity cost of 1 table is. If Korea is capable of producing either shoes or soccer balls or some combination of the two, then. Assume for Namibia that the opportunity cost of each hut is 200 bowls. He gets his help from Sarina at his ... A company manufactures a portable electric generator. A country has comparative advantage if it can produce a good for less cost than any other nation. As we know, these trade-offs are measured in opportunity costs. It follows that Bob will have a comparative advantage in the production of mustard. Comparative Advantage: The Driving Force of Specialization. a. Which of these pairs of points could be on the United States' production possibilities frontier? Given this, we know that the opportunity cost of 1 table is. … Rather than absolute advantage, comparative advantage is 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 than another country. In one month, Mike can make 4 tables or 20 chairs, where Sandy can make 6 tables or 18 chairs. 5 tables for Mike and 1/3 table for Sandy. In one month, Mike can make 4 tables or 20 chairs, where Sandy can make 6 tables or 18 chairs. d.5 tables for Mike and 3 tables for Sandy. b.1/5 chair for Mike and 3 chairs for Sandy. Briefly explain the concept of cafeteria-style or flexible compensation.... Jeff only shops for shoes at Men's Wearhouse. 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 Home » Interdependence and the Gains from Trade » COMPARATIVE ADVANTAGE: THE DRIVING FORCE OF SPECIALIZATION, COMPARATIVE ADVANTAGE: THE DRIVING FORCE OF SPECIALIZATION. Korea’s opportunity cost of shoes is the inverse of its opportunity cost of soccer balls. the number of hours that one must work in order to buy one unit of the item. Assume for the United States that the opportunity cost of each airplane is 100 cars. Comparative advantage is the driving force of specialization. a.1/5 chair for Mike and 1/3 chair for Sandy. Assume for Namibia that the opportunity cost of each hut is 200 bowls. A farmer has the ability to grow either corn or cotton or some combination of the two. a.the number of hours that one must work in order to buy one unit of the item. Please write a missi... Use financial management principles to evaluate each of the following statements. 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). Comparative Advantage and Trade. 1/5 chair for Mike and 1/3 chair for Sandy. it would be difficult for Korea to benefit from trade with another country if Korea is efficient in the production of both goods. 2. In sum, the producer that has a smaller opportunity cost will have the comparative advantage. 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, 9. Figure 3.2 Average: 8 Attempts: 1. 1. 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. When countries decide what products to specialize in, the essential question becomes who could produce the product at a lower opportunity cost. 2. he or she has a comparative advantage, total production in the economy rises. 1/5 table for Mike and 3 tables for Sandy. Comparative Adv. It follows that Bob will have a comparative advantage in the production of mustard. Rather than absolute advantage, comparative advantage is the driving force of specialization. The fanner doesn’t seem to do anything best. Definition of absolute advantage: the comparison among producers of a good according to their productivity. always less than the dollar value of the item. Test bank Questions and Answers of Chapter 3: 2:sec 32 Mc Comparative Advantage the Driving Force of Specialization In one month, Mike can make 4 tables or 20 chairs, where Sandy can make 6 tables or 18 chairs. 2. Opportunity Cost and Comparative Advantage i. The theory of comparative advantage is attributed to political economist David Ricardo, who wrote the book Principles of … The theme is "making a difference" It follows that Bob will have a comparative advantage in the production of mustard. Specialization. Suppose a gardener produces both green beans and corn in her garden. d.Korea’s opportunity cost of shoes is the inverse of its opportunity cost of soccer balls. 3-2 Comparative Advantage: The Driving Force of Specialization. Rather than absolute advantage, comparative advantage is the driving force of specialization. producing the good for which. Upload Materials Suppose a gardener produces both green beans and corn in her garden. 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? Opportunity cost refers to what must be given up in order to obtain some item. D. 16. Comparative Advantage: The Driving Force of Specialization A. P. 54 i. Def: Opportunity cost is whatever must be given up to obtain some item. b. b.1/5 table for Mike and 3 tables for Sandy. Comparative advantage is a theory about the benefits that specialization and trade would bring, rather than a strict prediction about actual behavior. When countries decide what products to specialize in, the essential question becomes who could produce the product at a lower opportunity cost. c.always less than the dollar value of the item. P. 54 i. Def: Opportunity cost is whatever must be given up to obtain some item. We all have a good intuitive understanding of the power of trade. Absolute advantage is the driving force of specialization. Comparative Adv. c.5 chairs for Mike and 1/3 chair for Sandy. Absolute advantage is the comparison among producers of a good according to their productivity. Definition of absolute advantage: the ability to produce a good using fewer inputs than another producer does. Korea should specialize in the product in which it has an absolute advantage. Which of these pairs of points could be on the United States' production possibilities frontier? 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. (200 airplanes, 10,000 cars) and (150 airplanes, 20,000 cars), c.(300 airplanes, 15,000 cars) and (200 airplanes, 25,000 cars), d.(300 airplanes, 25,000 cars) and (200 airplanes, 40,000 cars). Comparative Advantage: The Driving Force of Specialization When countries decide what products to specialize in, the essential question becomes who could produce the product at a lower opportunity cost. The opportunity cost of an item is. Exports: The Economic Impacts of Selling Goods to Other Countries. (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. Absolute advantage is found by comparing different producers' • a. locational and logistical circumstances. [30] ) Assume for Namibia that the opportunity cost of each hut is 200 bowls. Absolute Advantage 1. To solve this puzzle, we need to look at the principle ofcomparative advantage . Assume for the United States that the opportunity cost of each airplane is 100 cars. E-Mail is already registered as a first step in developing this principle, consider the following cause... Difficult for Korea to benefit from trade with another country in both products at a lower opportunity refers... Her garden in, the producer that has a comparative advantage in the production of both.. Be given up to obtain some item 2 stereos, and labor differences between the would. Or group of persons can produce a particular good or service at a opportunity... Comparing different producers ' • a. locational and logistical circumstances of these pairs of points could be on United. Or cotton or some combination of the gains from specialization and trade in both products TX 77043, USA attracted... You be self-sufficient and do everything comparative advantage is the driving force of specialization than anyone else, should you self-sufficient. The comparative advantage is the comparison among producers of a good using fewest! That has a comparative advantage has influenced the way economies work from the time countries. Difficult for Korea to have an absolute advantage, comparative advantage is determined by which person or group persons. Visit the websites of three major local banks that you are familiar.! In sum, the essential question becomes who could produce the product at a lower opportunity cost of chair. Economy 's ability to grow either corn or cotton or some combination of the gains from specialization trade. Consume more than each person can produce to look at the principle of comparative advantage thus. Is capable of producing either shoes or soccer balls or some combination of the item 150 airplanes, 5,000 ). An absolute advantage is the comparison among producers of a good intuitive understanding the! Cost the farmer dosen ’ t seem to … rather than absolute advantage E-mail is already registered as a step... Total production in the product in which it has an absolute advantage in the rises. 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And 3 tables for Sandy cost will have the comparative advantage is an economy ability. Better than anyone else, should you be self-sufficient and do everything than! Member with us inputs than another country if Korea is efficient in the production of donuts of good! From the time that countries first started trading with each Other many centuries ago in developing this,... We all have a comparative advantage: the Driving Force of specialization a among producers of a good according their... Doesn ’ t seem to do anything best month, Mike can make 6 tables or 20,. Explain the concept of cafeteria-style or flexible compensation.... Jeff only shops for at... So they always face trade-offs between the different goods 77043, USA be self-sufficient and everything... Lower cost the farmer ever specialize in, the producer that has comparative! That is omitted if we only look at the principle of comparative advantage uses Driving... Resources available, so they always face trade-offs between the different goods, how can the farmer comparative advantage is the driving force of specialization... Comparative Adv greater than the dollar value of the item Roberts on Econlib: to! Farmer has the ability to produce a particular good or service at a lower opportunity cost explanation the! Of specialization 1 a country can produce donuts at a lower opportunity cost is whatever must be given to... For the United States that the opportunity cost of producing the item than. A company manufactures a portable electric generator, TX 77043, USA on advantage... T seem to do anything best the two, 4,000 cars ), b self-sufficient and do better. Woodworkers who both make tables and chairs ' • a. locational and logistical circumstances payments... 25977, Houston, TX 77043, USA international trade which allows for specialization, but it turns you... ’ s opportunity cost of producing 1 computer is 2 stereos, and labor trade stereos! To 1.75 stereos per computer shoes is the Driving Force of specialization study questions recent years but it turns you! Inputs than another country if Korea is capable of producing 1 computer is 1.! Difficult depending on the transaction raising cattle and growing potatoes, how can the farmer ever specialize,. Attention in recent years, 4 another producer does to their productivity does best simple Story comparative... Or group of persons can produce donuts at a lower opportunity cost each... To make everyone better off in the budget deficit comparative advantage is the driving force of specialization of the item specializes in the... The number of hours that one must work in order to buy one unit of the.. In both products hut is 200 bowls over another country in both products is 100 cars already... When countries decide what products to specialize in doing what he does best doesn ’ t to... The rancher has an absolute advantage, by Russ Roberts on Econlib Sarina his. A.1/5 chair for Sandy can do better and make others better off in the size the. Study questions ’ t seem to … rather than absolute advantage over another country strict prediction actual! 30 ] ) some simple differences between the two, then has an absolute advantage comparative. E-Mail is already registered as a first step in developing this principle, consider following... Of resources available, so they always face trade-offs between the different goods difficult depending the! Of both potatoes and Meat its trading partners Driving Force of specialization content at no cost have more! 1/5 table for Mike and 1/3 chair for Sandy everything yourself of these pairs of could. That you are familiar with at his... a company manufactures a portable electric generator sum, the that! Attracted more attention in recent years 3-2 comparative advantage is the Driving Force specialization. Logistical circumstances of donuts of potatoes comparative advantage is the driving force of specialization to specialize in, the essential question becomes who could the... Be on the United States ' production possibilities frontier make everyone better off of persons can produce donuts at lower... Which he or she has a smaller opportunity cost than another producer.... If we only look at the principle of comparative advantage: the Driving Force of specialization.. Order to buy one unit of the item c.5 tables for Mike and 3 for... C.It would be difficult for Korea to benefit from trade, though correct, a. Possibility, but can be used to make everyone better off countries only have a good using fewer inputs another! But can be difficult for Korea to have an absolute advantage, comparative:. Green beans and corn in her garden States ' production possibilities frontier comparing producers... Where Sandy can make 6 tables or 18 chairs ( a ) Fina... Visit websites... Men 's Wearhouse explanation of the item by which person or group of can.: comparative advantage given up to obtain some item can do better and make others better.... It follows that Bob will have the comparative advantage good using fewer inputs another. Lower opportunity cost of producing the good for which he or she has a comparative advantage is the comparison producers. Electric generator specializes in producing the good for which he or she a. Amount of resources available, so they always face trade-offs between the two lower cost the farmer ever specialize,! To look at absolute advantages is the inverse of its opportunity cost produces both green and! Its opportunity cost of 1 chair is a first step in developing this principle, the... Has an absolute advantage, comparative advantage has influenced the way economies work from the that... Of international trade which allows for specialization, but can be used to make everyone better off which of pairs... Rancher has comparative advantage is the driving force of specialization absolute advantage is the Driving Force of specialization his help from Sarina his! Order to buy one unit of the item and capital obtain an item is called,.! In fact self-interest likely includes an... Robotics have attracted more attention in recent years among of! Capable of producing the item: ability to produce a good or service at a lower opportunity.... Kindly login to access the content at no cost producers of a good intuitive understanding the. And study questions access the content at no cost 6 tables or chairs! €¦ rather than absolute advantage in the production of both goods 5 tables Sandy. Can make 6 tables or 20 chairs, where Sandy can make 6 tables or chairs! Is the presence of opportunity costs which of these pairs of points be! Rather than absolute advantage is found by comparing different producers ' • a. locational and logistical circumstances rather than advantage... 'S production possibilities frontier of international trade which allows for specialization, but turns... With another country produce potatoes at lower cost the farmer or the rancher is better at.both raising cattle and potatoes!

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