The gains from specialization and trade are based not on absolute advantage but on comparative advantage. P. 54 b. more In our example, who can produce potatoes at lower cost the farmer or the rancher? Trade allows specialization based on comparative advantage and thus undoes this constraint, enabling each person to consume more than each person can produce. All countries only have a certain amount of resources available, so they always face trade-offs between the different goods. Given this, we know that the opportunity cost of 1 chair is. Which of the following could cause an increase in the budget deficit? In sum, the producer that has a smaller opportunity cost will have the comparative advantage. 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. D. 16. a.1/5 table for Mike and 1/3 table for Sandy. 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? The rancher’s explanation of the gains from trade, though correct, poses a puzzle. The fanner doesn’t seem to do anything best. Comparative Advantage: The Driving Force of Specialization 1. Opportunity Cost and Comparative Advantage i. 1. 1/5 chair for Mike and 3 chairs for Sandy. Comparative Advantage: The Driving Force of Specialization Definition of absolute advantage: the ability to produce a good using fewer inputs than another producer does. always less than the dollar value of the item. Rather than absolute advantage, comparative advantage is the driving force of specialization. : Ability to produce a good with a lower opportunity cost. Absolute advantage is 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? The traders decide on whether they should export or import goods depending on comparative advantages. Self-sufficiency is one possibility, but it turns out you can do better and make others better off in the process. d.always greater than the cost of producing the item. This increase in the size of the economic pie can be used to make everyone better off. Korea’s opportunity cost of shoes is the inverse of its opportunity cost of soccer balls. Average: 8 Attempts: 1. In sum, the producer that has a smaller opportunity cost will have the comparative advantage. c.5 tables for Mike and 1/3 table for Sandy. Specialization and comparative advantage are separate but related concepts. The Seemingly Simple Story of Comparative Advantage, by Russ Roberts on Econlib. It follows that Bob will have a comparative advantage in the production of mustard. Absolute advantage is the driving force of specialization. 200 Word Minimum. Question 5 tables for Mike and 1/3 table for Sandy. Why? a. c.always less than the dollar value of the item. 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 Advantage. 1/5 table for Mike and 1/3 table for Sandy. ScholarOn, 10685-B Hazelhurst Dr. # 25977, Houston, TX 77043,USA. Briefly explain the concept of cafeteria-style or flexible compensation.... Jeff only shops for shoes at Men's Wearhouse. Opportunity cost refers to what must be given up in order to obtain some item. The rancher’s explanation of the gains from trade, though correct, poses a puzzle. Definition of absolute advantage: the comparison among producers of a good according to their productivity. 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. 7. A farmer has the ability to grow either corn or cotton or some combination of the two. A country has comparative advantage if it can produce a good for less cost than any other nation. (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. d.5 chairs for Mike and 3 chairs for Sandy. Kindly login to access the content at no cost. 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. (200 airplanes, 5,000 cars) and (150 airplanes, 4,000 cars), b. Section 2. COMPARATIVE ADVANTAGE: THE DRIVING FORCE OF SPECIALIZATION. About US When each person specializes in producing the good for which he or she has a comparative advantage, total production in the economy rises. If the rancher is better at.both raising cattle and growing potatoes, how can the farmer ever specialize in doing what he does best? Mike and Sandy are two woodworkers who both make tables and chairs. 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. … 3-2 Comparative Advantage: The Driving Force of Specialization. Comparative Advantage: The Driving Force of Specialization a. Korea should specialize in the product in which it has an absolute advantage. 2. The farmer dosen’t seem to do anything best. Which of these pairs of points could be on the United States' production possibilities frontier? Part I. 10. Rancher 2 oz Potatoes ½ oz Meat. The opportunity cost of an item is. 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.1/5 chair for Mike and 1/3 chair for Sandy. a. He gets his help from Sarina at his ... A company manufactures a portable electric generator. The factors of production are capital, land, and labor. Suppose a gardener produces both green beans and corn in her garden. (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. Comparative Advantage and Trade. Comparative Advantage: The Driving Force of Specialization a. Farmer 4 oz Potatoes ¼ oz Meat. [30] ) 5 tables for Mike and 3 tables for Sandy. Comparative advantage is the driving force of specialization. always greater than the cost of producing the item. 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 … (200 huts, 30,000 bowls) and (150 huts, 35,000 bowls), b. 1. The fanner doesn’t seem to do anything best. Services b.it would be impossible for Korea to have an absolute advantage over another country in both products. The theory of comparative advantage is attributed to political economist David Ricardo, who wrote the book Principles of … To solve this puzzle, we need to look at the principle of comparative advantage. a.the number of hours that one must work in order to buy one unit of the item. In one month, Mike can make 4 tables or 20 chairs, where Sandy can make 6 tables or 18 chairs. 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 Definition of absolute advantage: the ability to produce a good using fewer inputs than another producer does. d.Korea’s opportunity cost of shoes is the inverse of its opportunity cost of soccer balls. Absolute Advantage 1. In one month, Mike can make 4 tables or 20 chairs, where Sandy can make 6 tables or 18 chairs. Opportunity Cost and Comparative Advantage i. Mike and Sandy are two woodworkers who both make tables and chairs. P. 54 i. Def: Opportunity cost is whatever must be given up to obtain some item. 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 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). If you do everything better than anyone else, should you be self-sufficient and do everything yourself? Assume for Namibia that the opportunity cost of each hut is 200 bowls. a. Mike and Sandy are two woodworkers who both make tables and chairs. 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). producing the good for which. 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