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