Compare the absolute Advantage theory of trade with the Comparative advantage theory of trade. A country can have a comparative advantage in producing a good even if it is absolutely less efficient at producing that good. Do you agree? Explain using an example
Hello,
A country has an absolute advantage if it is able to produce a good using fewer inputs than another producer, while a country has a comparative advantage if it can produce good at a lower opportunity cost of another producer.
For example, suppose Saudi Arabia and the United States each have 100 hours of work
using all of their resources. Using all of its resources, the
us
could produce 50 barrels of oil or 100 bushels of corn. So the opportunity cost of one barrel of oil is equivalent to two bushels of corn. slope is 1/2. Saudi Arabia will be able to produce 100 barrels oil / 25 bushels corn. The opportunity cost of producing a barrel of oil costs a quarter of a bushel of corn.
Regarding corn, Saudi Arabia spends the least to produce a barrel of oil, so it has a comparative advantage in oil production
In terms of corn, the United States spends the least on corn and has therefore a comparative advantage in corn. manufacturing.
Hope it helped
THANK YOU
