Comparative Advantage: The Driving Force of Specialization A. In sum, the producer that has a smaller opportunity cost will have the comparative advantage. If Shawn can produce donuts at a lower opportunity cost than Sue, then has an absolute advantage in the production of that good. Given this, we know that the opportunity cost of 1 table is. P. 54 b. All countries only have a certain amount of resources available, so they always face trade-offs between the different goods. 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. 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. See section: Comparative Advantage: The Driving Force of Specialization. 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. Services Opportunity Cost of Meat and Potatoes. : Ability to produce a good with a lower opportunity cost. In one month, Mike can make 4 tables or 20 chairs, where Sandy can make 6 tables or 18 chairs. If the rancher is better at.both raising cattle and growing potatoes, how can the farmer ever specialize in doing what he does best? 3-2 Comparative Advantage: The Driving Force of Specialization. Why? Farmer 4 oz Potatoes ¼ oz Meat. An important aspect that is omitted if we only look at absolute advantages is the presence of opportunity costs. [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 (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. Which of these pairs of points could be on the United States' production possibilities frontier? A farmer has the ability to grow either corn or cotton or some combination of the two. If they agree to trade 7 stereos for 4 computers, they are agreeing to 1.75 stereos per computer. a.1/5 table for Mike and 1/3 table for Sandy. 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. 2. Opportunity cost refers to what must be given up in order to obtain some item. Korea should specialize in the product in which it has an absolute advantage. Test bank Questions and Answers of Chapter 3: 2:sec 32 Mc Comparative Advantage the Driving Force of Specialization The factors of production are capital, land, and labor. 2. FAQ Suppose a gardener produces both green beans and corn in her garden. a. Assume for the, Comparative Advantage: The Driving Force of Specialization When each person specializes in producing the good for which he or she has a comparative advantage, total production in the economy rises. In economics, a comparative advantage occurs when a country can produce a good or service at a lower opportunity cost than another country. Which of these pairs of points could be on Namibia's production possibilities frontier? Definition of absolute advantage: the comparison among producers of a good according to their productivity. (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. Comparative Adv. Comparative Adv. In one month, Mike can make 4 tables or 20 chairs, where Sandy can make 6 tables or 18 chairs. Frank doesn’t seem to … Suppose a gardener produces both green beans and corn in her garden. Assume for Namibia that the opportunity cost of each hut is 200 bowls. 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 1/3 chair for Sandy. Absolute advantage is the driving force of specialization. 200 Word Minimum. To solve this puzzle, we need to look at the principle ofcomparative advantage . It follows that Bob will have a comparative advantage in the production of mustard. Rather than absolute advantage, comparative advantage is the driving force of specialization. a. Absolute advantage is found by comparing different producers' • a. locational and logistical circumstances. Buy Now, OPPORTUNIlY COST AND COMPARATIVE ADVANTAGE, SHOULD THE UNITED STATES TRADE WITH OTHER COUNTRIES, A Macroeconomic Theory OF The Open Economy, Business Fluctuations and the theory of Aggregate Demand, Exchange Rates and the International Financial System, INVESTMENT CRITERIA AND CHOICE OF TECHNIQUES, PARTIAL EQUILIBRIUM AND GENERAL EQUILIBRIUM ANALYSIS, PRODUCTION POSSIBILITY CURVE AND PRODUCTION FUNCTION, Saving Investment and the Financial System, The Influence of Monetary and Fiscal Policy on Aggregate Demand, The Markets for the Factors of Production, The Short-Run Trade-off between Inflation and Unem loyment, Unemployment and the Foundations of Aggregate Supply. Absolute Advantage 1. In fact self-interest likely includes an ... Robotics have attracted more attention in recent years. When countries decide what products to specialize in, the essential question becomes who could produce the product at a lower opportunity cost. As we know, these trade-offs are measured in opportunity costs. (200 huts, 30,000 bowls) and (150 huts, 35,000 bowls), b. Home » Interdependence and the Gains from Trade » COMPARATIVE ADVANTAGE: THE DRIVING FORCE OF SPECIALIZATION, COMPARATIVE ADVANTAGE: THE DRIVING FORCE OF SPECIALIZATION. ... To solve this puzzle, we need to look at the principle of comparative advantage. a.Korea should specialize in the product in which it has an absolute advantage. Assume for Namibia that the opportunity cost of each hut is 200 bowls. Rather than absolute advantage, comparative advantage is the driving force of specialization. b.1/5 chair for Mike and 3 chairs for Sandy. The theory of comparative advantage is attributed to political economist David Ricardo, who wrote the book Principles of … 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). Some simple differences between the two would be, comparative advantage uses the driving force of specialization. Given this, we know that the opportunity cost of 1 chair is. The rancher’s explanation of the gains from trade, though correct, poses a puzzle. d.Korea’s opportunity cost of shoes is the inverse of its opportunity cost of soccer balls. Comparative Advantage: The Driving Force of Specialization Rather than absolute advantage, comparative advantage is the driving force of specialization. Comparative Advantage: The Driving Force of Specialization A. 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. The opportunity cost of an item is. When each person specializes in. Mike and Sandy are two woodworkers who both make tables and chairs. Rather than absolute advantage, comparative advantage is the driving force of specialization. d. absolute advantage is the driving force of specialization 2. 1/5 chair for Mike and 3 chairs for Sandy. Part I. Absolute advantage is the driving force of specialization. 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. Comparative Advantage: The Driving Force of Specialization a. In one month, Mike can make 4 tables or 20 chairs, where Sandy can make 6 tables or 18 chairs. b.1/5 table for Mike and 3 tables for Sandy. c.it would be difficult for Korea to benefit from trade with another country if Korea is efficient in the production of both goods. Rancher 2 oz Potatoes ½ oz Meat. 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. Absolute Advantage 1. d.5 tables for Mike and 3 tables for Sandy. d.5 chairs for Mike and 3 chairs for Sandy. Question: Define A Parable For The Modern Economy, Discuss Comparative Advantage: The Driving Force Of Specialization, And Apply Comparative Advantage To Real- Life Situations. 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. 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? Comparative advantage has influenced the way economies work from the time that countries first started trading with each other many centuries ago. Self-sufficiency is one possibility, but it turns out you can do better and make others better off in the process. Shawn has a comparative advantage in the production of donuts. P. 54 b. b.it would be impossible for Korea to have an absolute advantage over another country in both products. The theme is "making a difference" c.5 chairs for Mike and 1/3 chair for Sandy. It follows that Bob will have a comparative advantage in the production of mustard. Rather than absolute advantage, comparative advantage is the driving force of specialization. Comparative Advantage. The rancher has an absolute advantage in the production of both potatoes and meat. The fanner doesn’t seem to do anything best. Absolute Advantage 1. is the most important; because of specialization. Comparative Advantage: The Driving Force of Specialization A. 1/5 table for Mike and 1/3 table for Sandy. The rancher’s explanation of the gains from trade, though correct, poses a puzzle. it would be impossible for Korea to have an absolute advantage over another country in both products. Assume for the United States that the opportunity cost of each airplane is 100 cars. 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. 1. It follows that Bob will have a comparative advantage in the production of mustard. This E-mail is already registered with us. (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). Assume for Namibia that the opportunity cost of each hut is 200 bowls. Specialization. We all have a good intuitive understanding of the power of trade. 1. [30] ) it would be difficult for Korea to benefit from trade with another country if Korea is efficient in the production of both goods. Which of these pairs of points could be on Namibia's production possibilities frontier? Comparative Advantage: The Driving Force of Specialization. Cindy's opportunity cost of producing 1 computer is 2 stereos, and Dana's opportunity cost of producing 1 computer is 1 stereo. Assume for the : 1486256. c.5 tables for Mike and 1/3 table for Sandy. Mike and Sandy are two woodworkers who both make tables and chairs. Suppose a gardener produces both green beans and corn in her garden. 1/5 chair for Mike and 1/3 chair for Sandy. Opportunity Cost and Comparative Advantage i. Kindly login to access the content at no cost. If the rancher is better at.both raising cattle and growing potatoes, how can the farmer ever specialize in doing what he does best? 10. The fanner doesn’t seem to do anything best. This E-mail is already registered as a Premium Member with us. If you do everything better than anyone else, should you be self-sufficient and do everything yourself? Comparative advantage is a theory about the benefits that specialization and trade would bring, rather than a strict prediction about actual behavior. 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. Comparative advantage is determined by which person or group of persons can produce a given quantity of a good using the fewest resources. Absolute advantage is the comparison among producers of a good according to their productivity. Average: 8 Attempts: 1. more Rather than absolute advantage, comparative advantage is the driving force of specialization. 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? What must be given up to obtain an item is called, 4. In our example, who can produce potatoes at lower cost the farmer or the rancher? Which of these pairs of points could be on the United States' production possibilities frontier? ScholarOn, 10685-B Hazelhurst Dr. # 25977, Houston, TX 77043,USA. a. This increase in the size of the economic pie can be used to make everyone better off. (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). 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). Comparative advantage the driving force of specialization o Absolute advantage from EC 120 at Wilfrid Laurier University Comparative advantage is the driving force of specialization. always less than the dollar value of the item. (a) Fina... Visit the websites of three major local banks that you are familiar with. Please write a missi... Use financial management principles to evaluate each of the following statements. Section 2. 2. About US In sum, the producer that has a smaller opportunity … … Definition of absolute advantage: the ability to produce a good using fewer inputs than another producer does. The gains from specialization and trade are based not on absolute advantage but on comparative advantage. Comparative Advantage and Trade. 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. (200 airplanes, 5,000 cars) and (150 airplanes, 4,000 cars), b. Comparative Advantage: The Driving Force of Specialization a. Trade allows specialization based on comparative advantage and thus undoes this constraint, enabling each person to consume more than each person can produce. P. 54 i. Def: Opportunity cost is whatever must be given up to obtain some item. Our Experts can answer your tough homework and study questions. Question • b. payments to land, labor, and capital. 1/5 table for Mike and 3 tables for Sandy. 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 Seemingly Simple Story of Comparative Advantage, by Russ Roberts on Econlib. 5 tables for Mike and 1/3 table for Sandy. Korea’s opportunity cost of shoes is the inverse of its opportunity cost of soccer balls. Assume for the United States that the opportunity cost of each airplane is 100 cars. Upload Materials Gains from Trade. In sum, the producer that has a smaller opportunity cost will have the comparative advantage. Exports: The Economic Impacts of Selling Goods to Other Countries. Assume for the United States that the opportunity cost of each airplane is 100 cars. which of following statement is not correct ? 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? 2. A farmer has the ability to grow either corn or cotton or some combination of the two. Producer 1 oz of Meat 1 oz of Potatoes. Comparative Advantage: The Driving Force of Specialization 1. Mike and Sandy are two woodworkers who both make tables and chairs. The driving force or determinants of a country’s comparative advantages include its natural resources, factors of production and the availability of technology (Bourdet, Gullstrand, & Olofsdotter, 2007). Comparative Advantage Comparative advantage is an economy's ability to produce a particular good or service at a lower opportunity cost than its trading partners. b. (200 huts, 40,000 bowls) and (150 huts, 30,000 bowls) In sum, the producer that has a smaller opportunity cost will have the comparative advantage. Kindly login to access the content at no cost. a.1/5 chair for Mike and 1/3 chair for Sandy. P. 54 i. Def: Opportunity cost is whatever must be given up to obtain some item. a.the number of hours that one must work in order to buy one unit of the item. (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. Treasure Island: The Power of Trade. 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. COMPARATIVE ADVANTAGE: THE DRIVING FORCE OF SPECIALIZATION. The farmer dosen’t seem to do anything best. If Korea is capable of producing either shoes or soccer balls or some combination of the two, then. Comparative Advantage: The Driving Force of Specialization. Exporting is a form of international trade which allows for specialization, but can be difficult depending on the transaction. Briefly explain the concept of cafeteria-style or flexible compensation.... Jeff only shops for shoes at Men's Wearhouse.