ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -How Do You Calculate Comparative Advantage? Comparative advantage is usually measured in opportunity costs, or the value of the goods that could be produced with the same resources. This is then compared with the opportunity costs of another economic actor to produce the same goods.

Detailed explanation-2: -The existence of a comparative advantage is, in turn, affected by things such as abundance, productivity, cost of labor, land, and capital. Other factors also might influence a country’s comparative advantage in practical terms, such as a highly developed financial system or economies of scale.

Detailed explanation-3: -Comparative Advantage Explained Comparative advantage is the ability of a country to produce a good or service for a lower opportunity cost than other countries. This economic theory was developed by David Ricardo.

Detailed explanation-4: -Assumptions of the Theory: The Ricardian doctrine of comparative advantage is based on the following assumptions: (1) There are only two countries, say A and B. (2) They produce the same two commodities, X and Y (3) Tastes are similar in both countries. (4) Labour is the only factor of production.