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