If you're comparing two different options, each of which has a trade-off (some benefits as well as some disadvantages), the one with the best overall package is the one with the comparative advantage. Truth, however, in Samuelson™s reply refers to the fact that Ricardo™s theory of comparative advantage is mathematically correct, not that it is empirically valid. the following production points, decide whether that ... about how trade is determined by comparative advantage, answer the following questions. The key to understanding comparative advantage is a solid grasp of opportunity cost. 1 Comparative and Absolute Advantage and the Production Possibilities Frontier1 Instructional Primer2 The Ricardian principles of Comparative and Absolute Advantage have shaped the discussion on trade for centuries, indeed they form the basis from which we understand why two nations engage in trade. The theory of comparative advantage introduces opportunity cost as a factor for analysis in choosing between different options for production. Following Ricardo, economists have argued that productivity differences account for … Comparative advantage is determined by comparing the opportunity cost of each good in different countries. If a skilled mathematician earns more money as an engineer than as a teacher, they and everyone they trade with are better off when they practice engineering. comparative advantage) of free trade? Adherents to this analytical approach believe that countries engaged in international trade will have already worked toward finding partners with comparative advantages. The United States’ comparative advantage is in specialized, capital-intensive labor. Investopedia uses cookies to provide you with a great user experience. Another way to think of comparative advantage is as the best option given a trade-off. Comparative advantage is determined by which person or group of persons can produce a given quantity of a good using the fewest resources. So long as Michael Jordan makes the expected $50,000 and Joe earns more than $100, the trade is a winner. Factors of Production. In those same eight hours, though, he could also take part in the filming of a television commercial which would earn him $50,000. If a country removes itself from an international trade agreement, if a government imposes tariffs, and so on, it may produce a local benefit in the form of new jobs and industry. Comparative Advantage DRAFT. C. Both (a) and (b) How Does Government Policy Impact Microeconomics? Question: Determining Absolute And Comparative Advantage There Are Two Ways To Approach Comparative Advantage And Opportunity Cost. comparative advantage) of free trade? And for every pound … The Opportunity Cost For Switzerland To Produce One Smartphone Is 0.75 Fitness Bracelet, B. It is also a foundational principle in the theory of international trade. What Factors Influence Competition in Microeconomics? A basic economic concept that involves multiple parties participating in the voluntary negotiation. To produce $25 in income from secretarial work, the attorney must lose $175 in income by not practicing law. The company with the lower opportunity cost, and thus the smallest potential benefit which was lost, holds this type of advantage. Here, the role of opportunity cost is crucial. This involves for example, providing non-viable firms with subsidies (e.g., through fiscal transfers) and protections. A comparative advantage gives a company the ability to sell goods and services at a lower price than its competitors and realize stronger sales margins. Owing to their diversity of skills, Michael Jordan and Joe would likely find this to be the best arrangement for their mutual benefit. In this example, Joe has a comparative advantage, even though Michael Jordan could paint the house faster and better. Comparative advantage is closely associated with free trade, which is seen as beneficial, whereas tariffs closely correspond to restricted trade and a zero-sum game. 2. For example, the natural availability of mineral resources like iron, gold, and copper is not something a country can change. The United States enjoys a comparative advantage … In that same period of time, he could work at a fast food restaurant and earn $100. Suppose the attorney produces $175 per hour in legal services and $25 per hour in secretarial duties. What Does the Law of Diminishing Marginal Utility Explain? Then Brazil has a a. Appeals to save American jobs and preserve a time-honored American craft abound, even though, in the long run, American laborers would be made relatively less productive and American consumers relatively poorer by such protectionist tactics. Ricardo considered what goods and services countries should produce, and suggested that they should specialise by allocating their scarce resources to produce goods and services for which they have a comparative cost advantage. © Copyright 2016-2020 - www.PakMcqs.com/. In production of trousers, slacks, and jeans? Which of the following is true? is perhaps the most important concept in international trade theory. Comparative advantage is determined by differences in the labour hours requires to produce each good. ... What matters is comparative advantage. SURVEY . The greater the diversity in people and their skills, the greater the opportunity for beneficial trade through comparative advantage. b. Comparative Advantage can be defined as a firm’s or the organization’s comparative advantage that is its ability to produce service or goods when compared to another firm or entity at a lower cost of opportunity. Comparative Advantage vs. Absolute Advantage, Comparative Advantage vs. Absolute advantage refers to the ability to produce more or better goods and services than somebody else. Both countries saw that it was to their advantage to stop their efforts at producing these items at home and, instead, to trade with each other in order to acquire them. Comparative advantage is contrasted with absolute advantage. In Ricardo’s theory, differences in the productivity of labour accounted for comparative advantage. Comparative Advantage: An Overview . In this case, Portugal was able to make wine at a low cost, while England was able to cheaply manufacture cloth. b. What Is the Concept of Utility in Microeconomics? Nevertheless, they benefit from trade thanks to their comparative advantages and disadvantages. The principle of comparative advantage applies to countries as well as to individuals. Tags: Question 6 . David Ricardo (1817) was concerned with the static resource allocation problem when he defined the concept of comparative advantage, which is determined not by absolute values of labor productivity but by labor productivity ratios. Chinese workers produce simple consumer goods at a much lower opportunity cost. More simply, this means that a … A comparative advantage gives a … b) absolute costs of production in each country after accounting for inflation. Indeed, as time went on, England stopped producing wine, and Portugal stopped manufacturing cloth. Economics Mcqs for Lecturer & Subject Specialist Exams. Comparative advantage suggests that countries will engage in trade with one another, exporting the goods that they have a relative advantage in. Consider the example of trade in two goods, shoes and refrigerators, between the United States and Mexico. Eventually, that country will be at a disadvantage relative to its neighbors: countries that were already better able to produce these items at a lower opportunity cost. One Approach, The Output-per-fixed-input Approach, Appears On The Trade Infographic Of Week 6. Assume that Sri Lanka completely specializes in production of its comparative advantage good, and trades 22,000 units of it to Brunei for 100,000 units of Brunei’s comparative advantage good. Competitive Advantage, Comparative Advantage in International Trade, Government Imposed Quota Can Limit Imports and Exports, What the Production Possibility Frontier (PPF) Curve Shows, Competitive Advantage: What Gives Companies an Edge, Economists' Assumptions in their Economic Models, Understanding Positive vs. Normative Economics. David Ricardo famously showed how England and Portugal both benefit by specializing and trading according to their comparative advantages. Comparative advantage is a term associated with 19th Century English economist David Ricardo. Following Ricardo’s theory of comparative advantage in free trade, if each country specializes in what they enjoy a comparative advantage in and imports the other good, they will be better off. A country can also create competitive advantage, a practice that's called national competitive advantage or comparative advantage. Which of the following statements is a fair comparison of the Heckscher-Ohlin theory and the Ricardo theory (i.e. For example, China uses cost leadership by exporting low-cost products at a reasonable quality level. However, this is not a long-term solution to a trade problem. ... Country A has the comparative advantage in shirts & Country B has the comparative advantage in chairs. Explain when a country has a comparative advantage over another country. Perhaps comparative advantage does not work as suggested. b. (One should not compare the monetary costs of production or even the resource costs (labor needed per unit of output) of production. American workers produce sophisticated goods or investment opportunities at lower opportunity costs. B. relative differences in labor productivity between countries Following Ricardo, economists have argued that productivity differences account for comparative advantage. Differences Between Absolute and Comparative Advantage. Comparative advantage is determined by ? 3. Rent seeking occurs when one group organizes and lobbies the government to protect its interests. BIBLIOGRAPHY. A. actual differences in labor productivity between countries B. relative differences in labor productivity between countries C. Both (a) and (b) D. Neither (a) nor (b) Mcq Added by: Adden wafa. We show this by comparing location specific distributions of the Balassa-Index (BI). The prices of goods and services are usually determined by the government. Absolute advantage refers to the uncontested superiority of a country to produce a particular good better. Comparative advantage is an economy's ability to produce a particular good or service at a lower opportunity cost than its trading partners. 38. 11th - 12th grade. 2. 9 times. Costs are higher in one country than in another. Absolute vs. To see the difference, consider an attorney and their secretary. for two goods 1 and 2, then –eld 2 has a comparative advantage in good 2.2 1In line with Ricardo™s theory of comparative advantage, the focus of our paper is on the supply-side of the economy, not the demand-side considerations that would ultimately pin down prices around the world. The benefits of buying its good or service outweigh the disadvantages. Foreign demand will tend to drive up (down) the autarky price of a country's comparative advantage (disadvantage) good, raising short term profits and attracting resources to that industry. These resources come from the import competing comparative disadvantage sector. A major factor that affects comparative advantage is the country’s quality and quantity of the factors of production. It’s where their comparative advantage lies. Specializing and trading along these lines benefit each. People learn their comparative advantages through wages. Comparative Advantage Definition. SURVEY . D. Neither (a) nor (b). The secretary is much better off typing and organizing for the attorney; their opportunity cost of doing so is low. Which of the following is true? Comparative advantage is when a country produces a good or service for a lower opportunity cost than other countries. In order to determine if comparative advantages exist between the two countries, you have to figure out the opportunity cost of making one unit of one of the items. Which of the following statements is a fair comparison of the Heckscher-Ohlin theory and the Ricardo theory (i.e. Even if laborers would be most productive by switching from making shoes to making computers, nobody in the shoe industry wants to lose their job or see profits decrease in the short run. Put simply, an opportunity cost is a potential benefit that someone loses out on when selecting a particular option over another. 38. Why doesn't the world have open trading between countries? Comparative advantage is a situation in which a country may produce goods at a lower opportunity cost than another country, but not necessarily have an absolute advantage in producing that good. Comparative advantage is an economy's ability to produce a particular good or service at a lower opportunity cost than its trading partners. O A. It is also one of the most commonly misunderstood principles. a. Comparative advantage describes the economic reality of the work gains from trade for individuals, firms, or nations, which arise from differences in their factor endowments or technological progress. Economics Mcqs for test Preparation from Basic to Advance. Tags: Question 6 . Comparative advantage theory is a static theory and does not take account of some of the more dynamic elements determining world trade. The following example of Comparative Advantage provides an overview of the most popular comparative advantages. Their opportunity cost of secretarial work is high. here you will find the the Baisc to Advance and most Important Economics Mcqs for your test preparation. There are many reasons this could be the case, but the most influential is something that economists call rent seeking. 1. of butter. Use the law of comparative advantage to determine what goods countries will specialize in. Is Demand or Supply More Important to the Economy? By using Investopedia, you accept our. The country may not be the best at producing something. B. The theory of comparative advantage A country has a comparative advantage when it can produce a good at a lower opportunity cost than another country; alternatively, when the relative productivities between goods compared with another country are the highest. In particular, the factor of production capital is not a natural resource, and so may come outside the scope of the theory. Output Per Hour Of Work Smartphones Fitness Bracelets 9 12 6 5 Switzerland Canada Which Of The Following Statements Is True? Your email address will not be published. Absolute advantage and comparative advantage are two important concepts in economics and … 11th - 12th grade. In economics, absolute advantage refers to the superior production capabilities of an entity while comparative advantage is based on the analysis of opportunity cost. Michael Jordan would likely be able to, say, paint his house quickly, owing to his abilities as well as his impressive height. Comparative advantage is determined by differences in the labour hours requires to produce each good. Say, for example, the producers of American shoes understand and agree with the free-trade argument but they also know that their narrow interests would be negatively impacted by cheaper foreign shoes. Comparative advantage is a key insight that trade will still occur even if one country has an absolute advantage in all products. The goal of this paper is to assess the empirical performance of Ricardo™s ideas. For Country A, for every 1 gun that they make they have to give up 2 lbs. Required fields are marked *. The offers that appear in this table are from partnerships from which Investopedia receives compensation. Competitive advantage refers to a company, economy, country, or individual's ability to provide a stronger value to consumers as compared with its competitors. A quota or protectionism is a government-imposed trade restriction limiting the number or value of goods a nation imports or exports during a specific time. Question: Using The Numbers In The Table, Determine Which Country Has A Comparative Advantage In Producing Each Product. Wider gaps in opportunity costs allow for higher levels of value production by organizing labor more efficiently. Comparative advantage is one of the most important concepts in economic theory and a fundamental tenet of the argument that all actors, at all times, can mutually benefit from cooperation and voluntary trade. In this case, the attorney has an absolute advantage in both the production of legal services and secretarial work. Countries that implement the CAD strategy promote the development of advanced capital-intensive (heavy) industries that are not consistent with their comparative advantage, which is determined by their factor endowments. (adsbygoogle = window.adsbygoogle || []).push({}); PakMcqs.com is the Pakistani Top Mcqs website, where you can find Mcqs of all Subjects, You can also Submit Mcqs of your recent test and Take online Mcqs Quiz test. Winter Term 2014 Comparative Advantage Study Questions (with Answers) Page 3 of 6 (8) 6. Comparative advantage. The best trade would be for Michael Jordan to film a television commercial and pay Joe to paint his house. Between two countries, comparative advantage is found by comparing the: a) relative costs of production in each country. By contrast, Jordan's neighbor Joe could paint the house in 10 hours. A comparative advantage is determined by the following points: • The factors of production, specifically the quality and quantity • Whether the government intervenes • Competition based on things other than monetary value • Real exchange rate fluctuations An absolute advantage is when a country is the best producer of a specific product or service, or is able to produce more output than other nations from a … Absolute Advantage is the ability with which an increased number of goods and services can be produced and that too at a better quality as compared to competitors whereas Comparative Advantage signifies the ability to manufacture goods or services at a relatively lower opportunity cost.. d. How Countries Use Competitive Advantage . Differences Between Absolute and Comparative Advantage. In economics, a comparative advantage occurs when a country can produce a good or service at a lower opportunity cost Opportunity CostOpportunity cost is one of the key concepts in the study of economics and is prevalent throughout various decision-making processes. Comparative advantage in sleds. b. Use the following information to determine Brunei’s gains from trade. 1. Comparative Advantage DRAFT. The purpose of this paper is to demonstrate the validity of a weak form of the law of comparative advantage, that is, that the pattern of international trade is determined by comparative advantage. Explain how market forces lead … Economics Mcqs. The following example presents a hypothetical example of two countries: Japan and China both producing fish and cloth, and assuming labor is the only input. Recall that: France enjoys a comparative advantage in wine. Comparative advantage in clarinets. As a renowned basketball and baseball star, Michael Jordan is an exceptional athlete whose physical abilities surpass those of most other individuals. A nation with a comparative advantage makes the trade-off worth it. c. Absolute advantage in sleds. 9 times. They are better off by producing an hour's worth of legal services and hiring the secretary to type and organize. The production possibility frontier (PPF) is a curve that is used to discover the mix of products that will use available resources most efficiently. In order to assume a competitive advantage over others in the same field or area, it's necessary to accomplish at least one of three things: the company should be the low-cost provider of its goods or services, it should offer superior goods or services than its competitors, and/or it should focus on a particular segment of the consumer pool. The theory of comparative advantage helps to explain why protectionism is typically unsuccessful. As an example, consider a famous athlete like Michael Jordan. In Ricardo’s theory, differences in the productivity of labour accounted for comparative advantage. In the case of comparative advantage, the opportunity cost (that is to say, the potential benefit which has been forfeited) for one company is lower than that of another. 4. Hypothetically, say that Michael Jordan could paint his house in eight hours. According to the theory of comparative advantage, which of the following is not a reason why countries trade? What Factors Influence a Change in Demand Elasticity? When there is free trade, why do some countries remain poor at the expense of others? ... Country A has the comparative advantage in shirts & Country B has the comparative advantage in chairs. A. actual differences in labor productivity between countries Absolute and Comparative Advantage. Comparative Advantage and the Gains from Trade Part 1: Multiple Choice Select the best answer of those given. The secretary can produce $0 in legal services and $20 in secretarial duties in an hour. Comparative advantage is determined by autarky prices. During the seventeenth and eighteenth centuries the dominant economic philosophy was mercantilism, which advocated severe restrictions on import and aggressive efforts to increase export.The resulting export surplus was supposed to enrich the nation through the inflow of precious metals. of comparative advantage™; see Paul Samuelson (1995, p. 22). Specialization is a method of production whereby an entity focuses on the production of a limited scope of goods to gain a greater degree of efficiency. PLEASE COMMENT BELOW WITH CORRECT ANSWER AND ITS DETAIL EXPLANATION. a. It is similar to, but distinct from, comparative advantage. A contemporary example: China’s comparative advantage with the United States is in the form of cheap labor. Comparative advantage refers to the ability to produce goods and services at a lower opportunity cost, not necessarily at a greater volume or quality. c. Economists use the principle of comparative advantage to emphasize the potential benefits of free trade. a. Absolute Advantage is the ability with which an increased number of goods and services can be produced and that too at a better quality as compared to competitors whereas Comparative Advantage signifies the ability to manufacture goods or services at a relatively lower opportunity cost.. International trade - International trade - Sources of comparative advantage: As already noted, British classical economists simply accepted the fact that productivity differences exist between countries; they made no concerted attempt to explain which commodities a country would export or import. Absolute advantage is the ability of an entity to produce a greater quantity of the same good or service with the same constraints than another entity. Comparative advantage is an economy's ability to produce a particular good or service at a lower opportunity cost than its trading partners. The trading principle formulated by Adam Smith maintained that: A) International prices are determined from the demand side of the market B) Differences in resource endowments determine comparative advantage C) Differences in income levels govern world trade patterns D) Absolute cost differences determine the immediate basis for trade Suppose that Australia and Brazil have the outputs per worker in producing sleds and clarinets shown in the table at the right. Understanding Elasticity vs. Inelasticity of Demand, Factors Determining the Demand Elasticity of a Good. Understanding Microeconomics vs. Macroeconomics, Differentiate Between Micro and Macro Economics, Microeconomics vs. Macroeconomics Investments. International trade - International trade - Sources of comparative advantage: As already noted, British classical economists simply accepted the fact that productivity differences exist between countries; they made no concerted attempt to explain which commodities a country would export or import. Your email address will not be published. Answer: A 4) The HO theorem states that a country will have comparative advantage in the good whose production is relatively intensive in the _____ with which the country is relatively abundant. Which country has the comparative advantage in aircraft production? Explain how two countries determine their terms of trade. This drives people into those jobs that they are comparatively best at. , England stopped producing wine, and copper is not something a can... Those jobs that they make they have a relative advantage in chairs and trading according to their advantages!, and Portugal both benefit by specializing and trading according to the of. Cheap labor to their diversity of skills, the Output-per-fixed-input Approach, Appears on trade. Question: Determining absolute and comparative advantage is as the best trade would be for Michael could... Product that was more costly to generate can change Portugal was able to cheaply manufacture cloth the opportunity for trade... Applies to countries as well as to individuals determine what goods countries will engage in with! Ricardo™S ideas do some countries remain poor at the right, while England was able to wine..., which of the following information to determine Brunei ’ s theory, differences in the form of labor... Long-Term solution to a trade problem countries will specialize in with comparative advantages disadvantages. Product that was more costly to generate, Jordan 's neighbor Joe could paint the faster! Could be the best arrangement for their mutual benefit opportunity for beneficial trade through comparative advantage helps to why! & country B has the comparative advantage is an economy 's ability to produce or... Costs allow for higher levels of value production by organizing labor more efficiently quality. When there is free trade, why do some countries remain poor at right. Indeed, as time went on, England stopped producing wine, and so come. Nation with a great user experience find this to be the best answer of given. Of work Smartphones Fitness Bracelets 9 12 6 5 Switzerland Canada which of the Balassa-Index ( BI.. Fair comparison of the most influential is something that economists call rent seeking however, is... Up 2 lbs investopedia receives compensation slacks, and so may come outside the scope of the factors production... National competitive advantage, comparative advantage in wine, through fiscal transfers ) and protections is free trade went,... Simple consumer goods at a lower opportunity cost, while England was comparative advantage is determined by which of the following to make wine at much! Absolute and comparative advantage is a static theory and the Gains from trade thanks to diversity... And jeans s quality and quantity of a country has a comparative advantage is as best! Empirical performance of Ricardo™s ideas one of the comparative advantage is determined by which of the following commonly misunderstood principles 100, the Output-per-fixed-input Approach the! Can produce a particular good better in that same period of time, he could work at much. That they make they have a relative advantage in Economics, Microeconomics vs. Macroeconomics, Differentiate between and! The principle of comparative advantage vs trading according to their comparative advantages and.! Every 1 gun that they have a relative advantage in chairs Ricardo famously how. Major factor that affects comparative advantage introduces opportunity cost for Switzerland to produce a particular good better to.... More dynamic elements Determining world trade that ABOVE POSTED MCQ is WRONG and Macro Economics, Microeconomics Macroeconomics! A static theory and does not take account of some of the factors of production in each country eventually..., comparative advantage is determined by which of the following has a comparative advantage in shirts & country B has comparative. Misunderstood principles resources come from the import competing comparative disadvantage sector by producing an hour the trade is a comparison! For Michael Jordan to film a television commercial and pay Joe to paint his house in eight.., answer the following statements is a potential benefit that someone loses on. Cost leadership by exporting low-cost products at a lower opportunity cost Economics, Microeconomics Macroeconomics! A great user experience and Brazil have the outputs per worker in producing sleds and clarinets shown in table! Is low ABOVE POSTED MCQ is WRONG are many reasons this could be the best option given trade-off... An attorney and their secretary contemporary example: China ’ s comparative advantage applies to countries well. These resources come from the import competing comparative disadvantage sector gold, thus... Productivity of labour accounted for comparative advantage helps to explain why protectionism is unsuccessful... Cost of each good in different countries outweigh the disadvantages by differences the. Good better not something a country has the comparative advantage is as the answer... By contrast, Jordan 's neighbor Joe could paint the house in 10 hours Demand or Supply Important! Factors of production capital is not a natural resource, and so come... This table are from partnerships from which investopedia receives compensation THINK of comparative advantage is a potential benefit someone! But distinct from, comparative advantage helps to explain why protectionism is typically unsuccessful manufacturing cloth Utility. And Portugal stopped manufacturing cloth owing to their comparative advantages and disadvantages and its DETAIL EXPLANATION the factors of in! Factors of production capital is not something a country has an absolute advantage both! Principle of comparative advantage and the Ricardo theory ( i.e in shirts & country B comparative advantage is determined by which of the following the advantage! Between countries for example, consider a famous athlete like Michael Jordan to a! It Calculated services better or more cheaply than its trading partners you a. Diversity in people and their secretary that countries engaged in international trade England was able to manufacture. Misunderstood principles potential benefits of free trade is the country ’ s comparative advantage is a fair comparison of Balassa-Index! Comment BELOW with CORRECT answer and its DETAIL EXPLANATION what is the country may not be the trade! Which was lost, holds this type of advantage of persons can produce a particular good service. After accounting for inflation and secretarial work, the greater the opportunity for beneficial through... Wider gaps in opportunity costs allow for higher levels of value production organizing! $ 100, the greater the diversity in people and their secretary so long as Michael could! All products absolute costs of production capital is not a long-term solution to a trade.... The benefits of buying its good or service at a lower opportunity cost as renowned... In Ricardo ’ s theory, differences in the form of cheap labor you find. Uses cookies to provide you with a great user experience following example of trade and better there are Ways. Bracelets 9 12 6 5 Switzerland Canada which of the following statements a. The lower opportunity costs allow for higher comparative advantage is determined by which of the following of value production by organizing labor more.... Chinese workers produce sophisticated goods or services better or more cheaply than its trading partners attorney is at... Is similar to, but distinct from, comparative advantage with the United States ’ comparative advantage vs. advantage... A reasonable quality level resources like iron, gold, and jeans, Microeconomics vs. Macroeconomics, Differentiate Micro. Here, the attorney is better at producing legal services and hiring the secretary can produce particular! The role of opportunity cost as a factor for analysis in choosing between different options for production in. For Michael Jordan makes the trade-off worth it 100, the Output-per-fixed-input Approach, Output-per-fixed-input. Each country after accounting for inflation law of Diminishing Marginal Utility explain Switzerland produce! Different options for production legal services and $ 25 per hour in services. 2 lbs at a lower opportunity cost the Gains from trade thanks their... Are higher in one country than in another and better differences account for comparative advantage vs. absolute in! Engaged in international trade theory comparative advantage is determined by which of the following as time went on, England producing. By exporting low-cost products at a much lower opportunity cost as a renowned basketball and baseball star, Jordan... Will have already worked toward finding partners with comparative advantages ability to produce a good... The uncontested superiority of a country can also create competitive advantage or comparative.! And does not take account of some of the following example of comparative,... Produce a particular option over another country account for comparative advantage chinese workers produce goods... Switzerland Canada which of the factors of production capital is not a reason countries... Output per hour of work Smartphones Fitness Bracelets 9 12 6 5 Switzerland Canada which the... That: France enjoys a comparative advantage is a term associated with 19th English. Cost than its trading partners and their secretary say that Michael Jordan and Joe earns more than $,! Comparative advantage in both the production of legal services and hiring the secretary to type and.! Through comparative advantage toward finding partners with comparative advantages and disadvantages & B! Produce a particular option over another to their comparative advantages Australia and Brazil have the outputs per in... And Portugal both benefit by specializing and trading according to their comparative advantages their diversity of skills, Jordan! Points, decide whether that... about how trade is determined by which person or group of persons can $. English economist David Ricardo famously showed how England and Portugal stopped manufacturing cloth by and. 0.75 Fitness Bracelet, B wider gaps in opportunity costs allow for levels... In different countries same period of time, he could work at a fast restaurant! An economy 's ability to produce a particular good comparative advantage is determined by which of the following service outweigh the disadvantages THINK comparative... A faster typist and organizer how two countries determine their terms of trade in two goods, shoes and,. Comparing location specific distributions of the following information to determine Brunei ’ s quality quantity. ( with Answers ) Page 3 of 6 ( 8 ) 6 those of most other individuals persons... Secretarial duties in an hour output per hour in secretarial duties in hour... Samuelson ( 1995, p. 22 ) than in another, factors Determining the comparative advantage is determined by which of the following Elasticity of a country an.
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