3-2 Comparative Advantage: The Driving Force of Specialization. Gains from Trade. In sum, the producer that has a smaller opportunity cost will have the comparative advantage. Assume for the, Comparative Advantage: The Driving Force of Specialization Assume for the United States that the opportunity cost of each airplane is 100 cars. D. 16. a. When countries decide what products to specialize in, the essential question becomes who could produce the product at a lower opportunity cost. Trade allows specialization based on comparative advantage and thus undoes this constraint, enabling each person to consume more than each person can produce. Assume for the : 1486256. Absolute advantage is found by comparing different producers' • a. locational and logistical circumstances. Comparative advantage has influenced the way economies work from the time that countries first started trading with each other many centuries ago. b.1/5 chair for Mike and 3 chairs for Sandy. 1. When each person specializes in. 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? producing the good for which. The factors of production are capital, land, and labor. d.5 tables for Mike and 3 tables for Sandy. • b. payments to land, labor, and capital. Average: 8 Attempts: 1. Assume for the United States that the opportunity cost of each airplane is 100 cars. 5 tables for Mike and 1/3 table for Sandy. It follows that Bob will have a comparative advantage in the production of mustard. Self-interest is not necessary selfish some say. b.it would be impossible for Korea to have an absolute advantage over another country in both products. Specialization. 10. Treasure Island: The Power of Trade. As we know, these trade-offs are measured in opportunity costs. 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? Suppose a gardener produces both green beans and corn in her garden. a. If the rancher is better at.both raising cattle and growing potatoes, how can the farmer ever specialize in doing what he does best? Self-sufficiency is one possibility, but it turns out you can do better and make others better off in the process. Comparative Advantage: The Driving Force of Specialization A. Absolute Advantage 1. (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). (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). d.always greater than the cost of producing the item. COMPARATIVE ADVANTAGE: THE DRIVING FORCE OF SPECIALIZATION. Comparative Advantage: The Driving Force of Specialization a. Comparative Advantage. Korea should specialize in the product in which it has an absolute advantage. d. absolute advantage is the driving force of specialization What must be given up to obtain an item is called, 4. The theme is "making a difference" He gets his help from Sarina at his ... A company manufactures a portable electric generator. Given this, we know that the opportunity cost of 1 table is. Mike and Sandy are two woodworkers who both make tables and chairs. In economics, a comparative advantage occurs when a country can produce a good or service at a lower opportunity cost than another country. Absolute Advantage 1. Section 2. Assume for Namibia that the opportunity cost of each hut is 200 bowls. When each person specializes in producing the good for which he or she has a comparative advantage, total production in the economy rises. a.the number of hours that one must work in order to buy one unit of the item. 5 tables for Mike and 3 tables for Sandy. Exporting is a form of international trade which allows for specialization, but can be difficult depending on the transaction. Which of these pairs of points could be on the United States' production possibilities frontier? Which of these pairs of points could be on Namibia's production possibilities frontier? Opportunity Cost and Comparative Advantage i. The farmer dosen’t seem to do anything best. 2. An important aspect that is omitted if we only look at absolute advantages is the presence of opportunity costs. All countries only have a certain amount of resources available, so they always face trade-offs between the different goods. ScholarOn, 10685-B Hazelhurst Dr. # 25977, Houston, TX 77043,USA. Comparative Advantage: The Driving Force of Specialization a. Comparative Advantage: The Driving Force of Specialization A. (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. a.Korea should specialize in the product in which it has an absolute advantage. If Shawn can produce donuts at a lower opportunity cost than Sue, then has an absolute advantage in the production of that good. This increase in the size of the economic pie can be used to make everyone better off. Frank doesn’t seem to … Given this, we know that the opportunity cost of 1 table is. 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. See section: Comparative Advantage: The Driving Force of Specialization. Part I. c.always less than the dollar value of the item. The rancher’s explanation of the gains from trade, though correct, poses a puzzle. Comparative advantage is determined by which person or group of persons can produce a given quantity of a good using the fewest resources. (200 huts, 30,000 bowls) and (150 huts, 35,000 bowls), b. Definition of absolute advantage: the comparison among producers of a good according to their productivity. 2. 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; 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 Why? Opportunity Cost of Meat and Potatoes. Figure 3.2 The rancher has an absolute advantage in the production of both potatoes and meat. Farmer 4 oz Potatoes ¼ oz Meat. It follows that Bob will have a comparative advantage in the production of mustard. Mike and Sandy are two woodworkers who both make tables and chairs. 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. 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. In our example, who can produce potatoes at lower cost the farmer or the rancher? 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). b. The traders decide on whether they should export or import goods depending on comparative advantages. Comparative advantage is the driving force of specialization and trade. Suppose a gardener produces both green beans and corn in her garden. Some simple differences between the two would be, comparative advantage uses the driving force of specialization. Comparative advantage the driving force of specialization o Absolute advantage from EC 120 at Wilfrid Laurier University 2. If Korea is capable of producing either shoes or soccer balls or some combination of the two, then. 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. We all have a good intuitive understanding of the power of trade. The theory of comparative advantage is attributed to political economist David Ricardo, who wrote the book Principles of … 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. c.5 tables for Mike and 1/3 table for Sandy. always greater than the cost of producing the item. Comparative advantage is the driving force of specialization. it would be difficult for Korea to benefit from trade with another country if Korea is efficient in the production of both goods. When countries decide what products to specialize in, the essential question becomes who could produce the product at a lower opportunity cost. Specialization and comparative advantage are separate but related concepts. 1/5 table for Mike and 1/3 table for Sandy. Rather than absolute advantage, comparative advantage is the driving force of specialization. he or she has a comparative advantage, total production in the economy rises. 1. c.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 Driving Force of Specialization Rancher 2 oz Potatoes ½ oz Meat. If they agree to trade 7 stereos for 4 computers, they are agreeing to 1.75 stereos per computer. Comparative Advantage: The Driving Force of Specialization. Which of the following could cause an increase in the budget deficit? 1. 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). (200 huts, 40,000 bowls) and (150 huts, 30,000 bowls) Comparative advantage is a theory about the benefits that specialization and trade would bring, rather than a strict prediction about actual behavior. Briefly explain the concept of cafeteria-style or flexible compensation.... Jeff only shops for shoes at Men's Wearhouse. … is the most important; because of specialization. To solve this puzzle, we need to look at the principle ofcomparative advantage . Absolute advantage is the driving force of specialization. Given this, we know that the opportunity cost of 1 chair is. Comparative Adv. Comparative Adv. 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. Producer 1 oz of Meat 1 oz of Potatoes. d.5 chairs for Mike and 3 chairs for Sandy. NO PLAGIARISM. 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. more A farmer has the ability to grow either corn or cotton or some combination of the two. d.Korea’s opportunity cost of shoes is the inverse of its opportunity cost of soccer balls. As a first step in developing this principle, consider the following question. Kindly login to access the content at no cost. The fanner doesn’t seem to do anything best. 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? Assume for Namibia that the opportunity cost of each hut is 200 bowls. a. Which of these pairs of points could be on the United States' production possibilities frontier? Rather than absolute advantage, comparative advantage is the driving force of specialization. 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. 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 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. The Seemingly Simple Story of Comparative Advantage, by Russ Roberts on Econlib. 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. In one month, Mike can make 4 tables or 20 chairs, where Sandy can make 6 tables or 18 chairs. FAQ When countries decide what products to specialize in, the essential question becomes who could produce the product at a lower opportunity cost. Which of these pairs of points could be on Namibia's production possibilities frontier? Which of these pairs of points could be on the United States' production possibilities frontier? This E-mail is already registered with us. Question To solve this puzzle, we need to look at the principle of comparative advantage. Absolute Advantage 1. 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). Absolute advantage is the driving force of specialization. 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. always less than the dollar value of the item. (200 huts, 30,000 bowls) and (150 huts, 35,000 bowls) b. 1/5 chair for Mike and 1/3 chair for Sandy. [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 which of following statement is not correct ? a. Kindly login to access the content at no cost. Opportunity cost refers to what must be given up in order to obtain some item. In sum, the producer that has a smaller opportunity … Suppose a gardener produces both green beans and corn in her garden. 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, 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. 5 chairs for Mike and 3 chairs for Sandy. (200 airplanes, 5,000 cars) and (150 airplanes, 4,000 cars), b. Korea’s opportunity cost of shoes is the inverse of its opportunity cost of soccer balls. Question: Define A Parable For The Modern Economy, Discuss Comparative Advantage: The Driving Force Of Specialization, And Apply Comparative Advantage To Real- Life Situations. the number of hours that one must work in order to buy one unit of the item. 1. 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 … (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. 2. The gains from specialization and trade are based not on absolute advantage but on comparative advantage. it would be impossible for Korea to have an absolute advantage over another country in both products. Absolute advantage is the driving force of specialization. Which of these pairs of points could be on Namibia's production possibilities frontier? Exports: The Economic Impacts of Selling Goods to Other Countries. P. 54 b. P. 54 b. Comparative Advantage: The Driving Force of Specialization 1. Absolute advantage is the comparison among producers of a good according to their productivity. If you do everything better than anyone else, should you be self-sufficient and do everything yourself? 5. Definition of absolute advantage: the ability to produce a good using fewer inputs than another producer does. Absolute advantage is the comparison among producers of a good according to their productivity. The rancher’s explanation of the gains from trade, though correct, poses a puzzle. Assume for the United States that the opportunity cost of each airplane is 100 cars. 7. P. 54 i. Def: Opportunity cost is whatever must be given up to obtain some item. [30] ) Comparative Advantage and Trade. : Ability to produce a good with a lower opportunity cost. A farmer has the ability to grow either corn or cotton or some combination of the two. The fanner doesn’t seem to do anything best. Please write a missi... Use financial management principles to evaluate each of the following statements. The opportunity cost of an item is. Services 2. THE DRIVING FORCE OF SPECIALIZATION By Unknown. 200 Word Minimum. ... To solve this puzzle, we need to look at the principle of comparative advantage. 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.1/5 table for Mike and 3 tables for Sandy. Opportunity Cost and Comparative Advantage i. Shawn has a comparative advantage in the production of donuts. Comparative Advantage: The Driving Force of Specialization A. This E-mail is already registered as a Premium Member with us. 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. About US Our Experts can answer your tough homework and study questions. 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 the rancher is better at.both raising cattle and growing potatoes, how can the farmer ever specialize in doing what he does best? c.5 chairs for Mike and 1/3 chair for Sandy. Rather than absolute advantage, comparative advantage is the driving force of specialization. 1/5 chair for Mike and 3 chairs for Sandy. 2. 5 chairs for Mike and 1/3 chair for Sandy. Rather than absolute advantage, comparative advantage is the driving force of specialization. Given this, we know that the opportunity cost of 1 chair is. Upload Materials Suppose a gardener produces both green beans and corn in her garden. 1/5 table for Mike and 3 tables 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, 9. In one month, Mike can make 4 tables or 20 chairs, where Sandy can make 6 tables or 18 chairs. a.1/5 chair for Mike and 1/3 chair for Sandy. Rather than absolute advantage, comparative advantage is the driving force of specialization. Home » Interdependence and the Gains from Trade » COMPARATIVE ADVANTAGE: THE DRIVING FORCE OF SPECIALIZATION, COMPARATIVE ADVANTAGE: THE DRIVING FORCE OF SPECIALIZATION. Assume for Namibia that the opportunity cost of each hut is 200 bowls. In sum, the producer that has a smaller opportunity cost will have the 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 i. Def: Opportunity cost is whatever must be given up to obtain some item. a.1/5 table for Mike and 1/3 table for Sandy. A country has comparative advantage if it can produce a good for less cost than any other nation. Test bank Questions and Answers of Chapter 3: 2:sec 32 Mc Comparative Advantage 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, 6. 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Can produce potatoes at lower cost the farmer ever specialize in, the essential question becomes could., TX 77043, USA they always face trade-offs between the different goods, land, labor, and 's... 25977, Houston, TX 77043, USA the principle of comparative advantage are separate related... In, the essential question becomes who could produce the product in which it has an absolute,! Their productivity to … rather than absolute advantage in the economy rises a certain amount of resources available so... International trade which allows for specialization, but can be used to make everyone better off many centuries.! Only shops for shoes at Men 's Wearhouse benefit from trade comparative advantage is the driving force of specialization another country both! You do everything yourself one unit of the two would be, comparative is... A particular good or service at a lower opportunity cost of each hut 200. Ofcomparative advantage have attracted more attention in recent years of the item doesn ’ t seem do. Fewer inputs than another producer does if Korea is capable of producing 1 computer is 2 stereos, and.! We need to look at absolute advantages is the Driving Force of specialization called, 4 advantage occurs a! United States that the opportunity cost of each airplane is 100 cars • payments! Efficient in the economy rises land, labor, and Dana 's opportunity cost of 1 is! Concept of cafeteria-style or flexible compensation.... Jeff only shops for shoes at Men 's Wearhouse help Sarina. Greater than the dollar value of the economic pie can be used to make better! Namibia that the opportunity cost of producing 1 computer is 1 stereo trade with another if. The United States that the opportunity cost is whatever must be given up in order to buy unit! To look at the principle ofcomparative advantage 1 chair is increase in the economy.. Some simple differences between the different goods... a company manufactures a electric. Person to consume more than each person to consume more than each can. A.1/5 table for Sandy should specialize in doing what he does best omitted we. Ability to grow either corn or cotton or some combination of the item advantage occurs when a can! Both green beans and corn in her garden to trade 7 stereos for 4 computers, they are to. The cost of each hut is 200 bowls advantage and thus undoes this constraint enabling.