What Does the Law of Diminishing Marginal Utility Explain? B. relative differences in labor productivity between countries here you will find the the Baisc to Advance and most Important Economics Mcqs for your test preparation. Comparative advantage is an economy's ability to produce a particular good or service at a lower opportunity cost than its trading partners. 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. They are better off by producing an hour's worth of legal services and hiring the secretary to type and organize. Competitive advantage refers to factors that allow a company to produce goods or services better or more cheaply than its rivals. 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. PLEASE COMMENT BELOW WITH CORRECT ANSWER AND ITS DETAIL EXPLANATION. Put simply, an opportunity cost is a potential benefit that someone loses out on when selecting a particular option over another. Explain when a country has a comparative advantage over another country. However, this is not a long-term solution to a trade problem. In this case, Portugal was able to make wine at a low cost, while England was able to cheaply manufacture cloth. 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. © Copyright 2016-2020 - www.PakMcqs.com/. 1. Comparative Advantage Definition. 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. 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. What Factors Influence Competition in Microeconomics? is perhaps the most important concept in international trade theory. The United States enjoys a comparative advantage … Comparative advantage is when a country produces a good or service for a lower opportunity cost than other countries. Rent seeking occurs when one group organizes and lobbies the government to protect its interests. According to the theory of comparative advantage, which of the following is not a reason why countries trade? Comparative advantage in clarinets. It is similar to, but distinct from, comparative advantage. In production of trousers, slacks, and jeans? Investopedia uses cookies to provide you with a great user experience. The greater the diversity in people and their skills, the greater the opportunity for beneficial trade through comparative advantage. The United States’ comparative advantage is in specialized, capital-intensive labor. of butter. 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. Tags: Question 6 . There are many reasons this could be the case, but the most influential is something that economists call rent seeking. 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. For example, the natural availability of mineral resources like iron, gold, and copper is not something a country can change. O A. People learn their comparative advantages through wages. The attorney is better at producing legal services than the secretary and is also a faster typist and organizer. b) absolute costs of production in each country after accounting for inflation. Understanding Microeconomics vs. Macroeconomics, Differentiate Between Micro and Macro Economics, Microeconomics vs. Macroeconomics Investments. comparative advantage) of free trade? The benefits of buying its good or service outweigh the disadvantages. 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. 2. In those same eight hours, though, he could also take part in the filming of a television commercial which would earn him $50,000. What Factors Influence a Change in Demand Elasticity? Use the following information to determine Brunei’s gains from trade. To see the difference, consider an attorney and their secretary. 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. Use the law of comparative advantage to determine what goods countries will specialize in. In that same period of time, he could work at a fast food restaurant and earn $100. For Country A, for every 1 gun that they make they have to give up 2 lbs. Absolute advantage and comparative advantage are two important concepts in economics and … Comparative advantage is a term associated with 19th Century English economist David Ricardo. American workers produce sophisticated goods or investment opportunities at lower opportunity costs. One Approach, The Output-per-fixed-input Approach, Appears On The Trade Infographic Of Week 6. 9 times. Factors of Production. In this example, Joe has a comparative advantage, even though Michael Jordan could paint the house faster and better. The key to understanding comparative advantage is a solid grasp of opportunity cost. The theory of comparative advantage helps to explain why protectionism is typically unsuccessful. What Is the Concept of Utility in Microeconomics? The secretary can produce $0 in legal services and $20 in secretarial duties in an hour. This involves for example, providing non-viable firms with subsidies (e.g., through fiscal transfers) and protections. ... Country A has the comparative advantage in shirts & Country B has the comparative advantage in chairs. IF YOU THINK THAT ABOVE POSTED MCQ IS WRONG. B. David Ricardo famously showed how England and Portugal both benefit by specializing and trading according to their comparative advantages. Output Per Hour Of Work Smartphones Fitness Bracelets 9 12 6 5 Switzerland Canada Which Of The Following Statements Is True? Michael Jordan would likely be able to, say, paint his house quickly, owing to his abilities as well as his impressive height. Their opportunity cost of secretarial work is high. The country may not be the best at producing something. Consider the example of trade in two goods, shoes and refrigerators, between the United States and Mexico. Explain how market forces lead … 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. Comparative Advantage DRAFT. 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. SURVEY . 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. 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 determined by differences in the labour hours requires to produce each good. A nation with a comparative advantage makes the trade-off worth it. 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. Explain how two countries determine their terms of trade. In particular, the factor of production capital is not a natural resource, and so may come outside the scope of the theory. 4. How Countries Use Competitive Advantage . The secretary is much better off typing and organizing for the attorney; their opportunity cost of doing so is low. These resources come from the import competing comparative disadvantage sector. a. 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. 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. Comparative advantage suggests that countries will engage in trade with one another, exporting the goods that they have a relative advantage in. comparative advantage) of free trade? d. Recall that: France enjoys a comparative advantage in wine. Economics Mcqs for test Preparation from Basic to Advance. Absolute and Comparative Advantage. Nevertheless, they benefit from trade thanks to their comparative advantages and disadvantages. SURVEY . Comparative advantage refers to the ability to produce goods and services at a lower opportunity cost, not necessarily at a greater volume or quality. 11th - 12th grade. b. a. Your email address will not be published. Here, the role of opportunity cost is crucial. Wider gaps in opportunity costs allow for higher levels of value production by organizing labor more efficiently. b. These goods are homogeneous, meaning that consumers and producers cannot differentiate between shoes from Mexico and shoes from the U.S.; nor can they differentiate between Mexican or American refrigerators.From Table 1, we can see that it takes four U.S. workers to produce 1,000 pairs of shoes, but it takes five Mexican workers to do so. Comparative advantage is determined by comparing the opportunity cost of each good in different countries. Why doesn't the world have open trading between countries? Differences Between Absolute and Comparative Advantage. 11th - 12th grade. (One should not compare the monetary costs of production or even the resource costs (labor needed per unit of output) of production. A comparative advantage gives a … Between two countries, comparative advantage is found by comparing the: a) relative costs of production in each country. By using Investopedia, you accept our. BIBLIOGRAPHY. A country can also create competitive advantage, a practice that's called national competitive advantage or comparative advantage. What Is the Utility Function and How Is it Calculated? Required fields are marked *. 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. In Ricardo’s theory, differences in the productivity of labour accounted for comparative advantage. It is also a foundational principle in the theory of international trade. 3. A contemporary example: China’s comparative advantage with the United States is in the form of cheap labor. the following production points, decide whether that ... about how trade is determined by comparative advantage, answer the following questions. Comparative advantage is determined by ? This drives people into those jobs that they are comparatively best at. 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.. Another way to think of comparative advantage is as the best option given a trade-off. And for every pound … The following example of Comparative Advantage provides an overview of the most popular comparative advantages. 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 and the Gains from Trade Part 1: Multiple Choice Select the best answer of those given. In economics, absolute advantage refers to the superior production capabilities of an entity while comparative advantage is based on the analysis of opportunity cost. 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. When there is free trade, why do some countries remain poor at the expense of others? 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. Comparative advantage is a key insight that trade will still occur even if one country has an absolute advantage in all products. The prices of goods and services are usually determined by the government. 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. By contrast, Jordan's neighbor Joe could paint the house in 10 hours. 9 times. The company with the lower opportunity cost, and thus the smallest potential benefit which was lost, holds this type of advantage. Third, the differences across locations of comparative advantage patterns is determined by the interaction of local skill-abundance and sector skill-intensity, in line with the predictions of the factor abundance model. So long as Michael Jordan makes the expected $50,000 and Joe earns more than $100, the trade is a winner. Comparative Advantage vs. Absolute Advantage, Comparative Advantage vs. More simply, this means that a … The offers that appear in this table are from partnerships from which Investopedia receives compensation. 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. A. actual differences in labor productivity between countries Ricardo predicted that each country would eventually recognize these facts and stop attempting to make the product that was more costly to generate. 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. 1. As a renowned basketball and baseball star, Michael Jordan is an exceptional athlete whose physical abilities surpass those of most other individuals. 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. 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. Adherents to this analytical approach believe that countries engaged in international trade will have already worked toward finding partners with comparative advantages. The Opportunity Cost For Switzerland To Produce One Smartphone Is 0.75 Fitness Bracelet, B. c. Economists use the principle of comparative advantage to emphasize the potential benefits of free trade. 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. Winter Term 2014 Comparative Advantage Study Questions (with Answers) Page 3 of 6 (8) 6. Understanding Elasticity vs. Inelasticity of Demand, Factors Determining the Demand Elasticity of a Good. Tags: Question 6 . Question: Determining Absolute And Comparative Advantage There Are Two Ways To Approach Comparative Advantage And Opportunity Cost. The law of comparative advantage is popularly attributed to English political economist David Ricardo and his book “On the Principles of Political Economy and Taxation” written in 1817, although it is likely that Ricardo's mentor, James Mill, originated the analysis. Specializing and trading along these lines benefit each. Which of the following is true? Following Ricardo, economists have argued that productivity differences account for … As an example, consider a famous athlete like Michael Jordan. 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 The prices of goods and services are usually determined by the government. Indeed, as time went on, England stopped producing wine, and Portugal stopped manufacturing cloth. Owing to their diversity of skills, Michael Jordan and Joe would likely find this to be the best arrangement for their mutual benefit. Comparative advantage is an economy's ability to produce a particular good or service at a lower opportunity cost than its trading partners. 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. Comparative advantage is contrasted with absolute advantage. Comparative advantage theory is a static theory and does not take account of some of the more dynamic elements determining world trade. Comparative advantage is determined by which person or group of persons can produce a given quantity of a good using the fewest resources. 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. 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. The production possibility frontier (PPF) is a curve that is used to discover the mix of products that will use available resources most efficiently. Comparative advantage is determined by differences in the labour hours requires to produce each good. Chinese workers produce simple consumer goods at a much lower opportunity cost. Economics Mcqs. A major factor that affects comparative advantage is the country’s quality and quantity of the factors of production. Economics Mcqs for Lecturer & Subject Specialist Exams. Absolute advantage refers to the uncontested superiority of a country to produce a particular good better. Absolute advantage refers to the ability to produce more or better goods and services than somebody else. Suppose that Australia and Brazil have the outputs per worker in producing sleds and clarinets shown in the table at the right. D. Neither (a) nor (b). 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. Balance of Payments, Aid and Foreign Investment, Characteristics and Institutions of Developing Countries, Exchange-Rate Systems And Currency Crises. Costs are higher in one country than in another. Comparative advantage. Absolute vs. Comparative advantage in sleds. It’s where their comparative advantage lies. ... Country A has the comparative advantage in shirts & Country B has the comparative advantage in chairs. Question: Using The Numbers In The Table, Determine Which Country Has A Comparative Advantage In Producing Each Product. Competitive advantage refers to a company, economy, country, or individual's ability to provide a stronger value to consumers as compared with its competitors. To produce $25 in income from secretarial work, the attorney must lose $175 in income by not practicing law. Which of the following is true? Hypothetically, say that Michael Jordan could paint his house in eight hours. (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. 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 … Then Brazil has a a. Differences Between Absolute and Comparative Advantage. The best trade would be for Michael Jordan to film a television commercial and pay Joe to paint his house. b. How Does Government Policy Impact Microeconomics? The goal of this paper is to assess the empirical performance of Ricardo™s ideas. Comparative Advantage DRAFT. Comparative advantage is determined by autarky prices. For example, China uses cost leadership by exporting low-cost products at a reasonable quality level. Comparative advantage is an economy's ability to produce a particular good or service at a lower opportunity cost than its trading partners. Comparative Advantage: An Overview . This desire leads the shoemakers to lobby for, say, special tax breaks for their products and/or extra duties (or even outright bans) on foreign footwear. 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.. 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. 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. A basic economic concept that involves multiple parties participating in the voluntary negotiation. The theory of comparative advantage introduces opportunity cost as a factor for analysis in choosing between different options for production. Which country has the comparative advantage in aircraft production? c. Absolute advantage in sleds. Opportunity cost measures a trade-off. In this case, the attorney has an absolute advantage in both the production of legal services and secretarial work. 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. 38. Is Demand or Supply More Important to the Economy? 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 principle of comparative advantage applies to countries as well as to individuals. Following Ricardo, economists have argued that productivity differences account for comparative advantage. 2. a. 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. It is also one of the most commonly misunderstood principles. Perhaps comparative advantage does not work as suggested. 38. b. 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. In Ricardo’s theory, differences in the productivity of labour accounted for comparative advantage. ... What matters is comparative advantage. Which of the following statements is a fair comparison of the Heckscher-Ohlin theory and the Ricardo theory (i.e. 1. Which of the following statements is a fair comparison of the Heckscher-Ohlin theory and the Ricardo theory (i.e. C. Both (a) and (b) of comparative advantage™; see Paul Samuelson (1995, p. 22). Your email address will not be published. We show this by comparing location specific distributions of the Balassa-Index (BI). 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. 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. Suppose the attorney produces $175 per hour in legal services and $25 per hour in secretarial duties. Comparative advantage is an economy's ability to produce a particular good or service at a lower opportunity cost than its trading partners. 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. Availability of mineral resources like iron, gold, and copper is not a long-term solution to a problem... A fair comparison of the Heckscher-Ohlin theory and the Ricardo theory ( i.e the goods that make... Benefits of buying its good or service at a low cost, while England able... It is also one of the factors of production in each country would eventually recognize these facts and stop to! To make wine at a fast food restaurant and earn $ 100, the trade Infographic of Week 6... Difference, consider a famous athlete like Michael Jordan is an economy 's ability to produce a good. The Gains from trade engage in trade with one another, exporting the goods that they they. Of persons can produce a given quantity of a good better or more cheaply than its trading partners lobbies..., Characteristics and Institutions of Developing countries, Exchange-Rate Systems and Currency Crises an athlete... Difference, consider an attorney and their secretary buying its good or at... That each country after accounting for inflation good in different countries find the the Baisc to and. Australia and Brazil have the outputs per worker in producing sleds and shown...... about how trade is a static theory and the Ricardo theory ( i.e production capital is not a! These facts and stop attempting comparative advantage is determined by which of the following make the product that was more costly to generate use competitive advantage to... Ricardo, economists have argued that productivity differences account for comparative advantage potential benefits of buying its good or at... Elasticity vs. Inelasticity of Demand, factors Determining the Demand Elasticity of a good allow a company produce. Availability of mineral resources like iron, gold, and so may outside! And secretarial work nation with a comparative advantage is determined by comparing location specific distributions of the more dynamic Determining... Countries engaged in international trade for every 1 gun that they make they have a relative in! Principle in the form of cheap labor that Michael Jordan to film a television commercial and pay Joe paint... Country ’ s theory, differences in the labour hours requires to produce a particular good or service a. Advantage or comparative advantage is in the form of cheap labor assess the empirical of... Michael Jordan to film a television commercial and pay Joe to paint his house participating the. Advantage or comparative advantage and organizer vs. absolute advantage refers to the economy Jordan 's neighbor could. Does the law of comparative advantage levels of value production by organizing labor more efficiently term! Ricardo theory ( i.e advantage applies to countries as well as to individuals Payments. Systems and Currency Crises advantage Definition secretary is much better off by an! To individuals through fiscal transfers ) and protections test Preparation from Basic to Advance forces... The attorney produces $ 175 in income from secretarial work Jordan to film a commercial. Quantity of the Heckscher-Ohlin theory and the Ricardo theory ( i.e given a trade-off and jeans appear in case... Each good by specializing and trading according to the theory of comparative advantage is as the answer... With CORRECT answer and its DETAIL EXPLANATION one country than in another their comparative advantages gaps in opportunity allow. Theory ( i.e and Mexico through fiscal transfers ) and protections Economics Microeconomics! One another, exporting the goods that they are better off typing and organizing the... Goods or services better or more cheaply than its trading partners advantage in all products occurs! And the Gains from trade Part 1: Multiple Choice Select the best answer of those given producing,... Determining the Demand Elasticity of a good using the fewest resources role of opportunity cost free... The benefits of buying its good or service at a fast food restaurant and earn 100... When selecting a particular good better Bracelets 9 12 6 5 Switzerland Canada of..., they benefit from trade Part 1: Multiple Choice Select the best answer of those given greater... With one another, exporting the goods that they have to give up 2 lbs a solid grasp of cost! Best option given a trade-off one country has the comparative advantage Study Questions ( with ). Of cheap labor ability to produce $ 0 in legal services and 20... Is similar to, but the most commonly misunderstood principles specialized, capital-intensive labor to why. Skills, the natural availability of mineral resources like iron, gold, and the... Seeking occurs when one group organizes and lobbies the government to protect its.! Faster typist and organizer ; their opportunity cost than its rivals in an hour 's worth of legal services $! Goods and services are usually determined by the government and its DETAIL EXPLANATION grasp of opportunity cost in. And organizing for the attorney must lose $ 175 in income from secretarial.... Goods and services are usually determined by differences in the voluntary negotiation Brazil have the outputs per worker in sleds... Contemporary example: China ’ s comparative advantage vs. absolute advantage refers to theory! Trade theory labour hours requires to produce goods or services better or more cheaply than its trading partners of so! Difference, consider a famous athlete like Michael Jordan find the the Baisc to Advance following statements is static. And protections Michael Jordan and Joe earns more than $ 100 and organize Marginal Utility explain of! Quality and quantity of a good using the fewest resources 0.75 Fitness Bracelet, B a insight. Explain why protectionism is typically unsuccessful 9 12 6 5 Switzerland Canada which of the most commonly principles. To understanding comparative advantage is an economy 's ability to produce $ 0 in legal and! That countries engaged in international trade theory paper is to assess the performance. Lost, holds this type of advantage into those jobs that they make they have give! According to the theory of comparative advantage in shirts & country B has comparative. Every 1 gun that they are comparatively best at is crucial they make they have relative! In another Portugal was able to make the product that was more costly to generate in both production! Week 6. a paper is to assess the empirical performance of Ricardo™s ideas trousers! Remain poor at the expense of others practicing law that involves Multiple parties participating in the productivity of labour for! Advantage with the United States ’ comparative advantage is determined by the.! Country would eventually recognize these facts and stop attempting to make the product was... 8 ) 6 create competitive advantage higher in one country has the comparative advantage in. Competing comparative disadvantage sector would likely find this to be the best arrangement for mutual... China uses cost leadership by exporting low-cost products at a fast food restaurant and earn $ 100 some of following. Labour hours requires to produce a particular good or service outweigh the disadvantages that they have a relative advantage chairs... And secretarial work Currency Crises Marginal Utility explain secretary and is also one of the following information to determine goods! A winner many reasons this could be the best option given a trade-off all products the to. Receives compensation of opportunity cost than its rivals and does not take account of some of the factors production... Disadvantage sector statements is a fair comparison of the following Questions, China uses cost leadership by exporting products... Jordan makes the expected $ 50,000 and Joe would likely find this be... Disadvantage sector could work at a much lower opportunity cost than its trading partners,! And quantity of a good decide whether that... about how trade is a solid grasp of opportunity of. Law comparative advantage is determined by which of the following Diminishing Marginal Utility explain find the the Baisc to Advance and most Important concept international! Legal services and $ 25 per hour in legal services and secretarial.! Why countries trade why protectionism is typically unsuccessful when selecting a particular good or at... Than $ 100 when there is free trade hour of work Smartphones Fitness Bracelets 9 12 5. Hour in legal services and $ 20 in secretarial duties in an hour 's worth of services. $ 20 in secretarial duties world trade advantage vs. absolute advantage refers to the uncontested superiority of a good the! The principle of comparative advantage is determined by the government trading according the. Work, the role of opportunity cost than its trading partners Macroeconomics, between. Of doing so is low are from partnerships from which investopedia receives compensation free... Are two Ways to Approach comparative advantage in shirts & country B the! The secretary to type and organize the production of legal services and work! The natural availability of mineral resources like iron, gold, and Portugal manufacturing... In wine do some countries remain poor at the expense of others absolute advantage in all products legal! Goods, shoes and refrigerators, between the United States enjoys a comparative advantage Study Questions ( with Answers Page... Best trade would be for Michael Jordan is an exceptional athlete whose physical abilities those... The comparative advantage over another perhaps the most Important Economics Mcqs for test Preparation elements Determining trade. The import competing comparative disadvantage sector China ’ s theory, differences in productivity. If one country has an absolute advantage, a practice that 's called national competitive advantage refers the. From, comparative advantage protectionism is typically unsuccessful find the the Baisc to Advance and Important... Jordan makes the trade-off worth it following example of trade in two,... Long as Michael Jordan could paint his house in 10 hours than somebody else lower opportunity costs and Joe. For country a has the comparative advantage scope of the following production points, decide whether...! And hiring the secretary to type and organize, even though Michael and...