ECONOMICS
TRADE EXCHANGE AND INTERDEPENDENCE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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absolute advantage
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comparative advantage
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Either A or B
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None of the above
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Detailed explanation-1: -Comparative advantage is an economy’s ability to produce a particular good or service at a lower opportunity cost than its trading partners. The theory of comparative advantage introduces opportunity cost as a factor for analysis in choosing between different options for production.
Detailed explanation-2: -A country is said to have a comparative advantage if it produces a good or service with the lowest opportunity cost.
Detailed explanation-3: -Comparative advantage is a key principle in international trade and forms the basis of why free trade is beneficial to countries. The theory of comparative advantage shows that even if a country enjoys an absolute advantage in the production of goods, trade can still be beneficial to both trading partners.
Detailed explanation-4: -A person has a comparative advantage at producing something if he can produce it at lower cost than anyone else. Having a comparative advantage is not the same as being the best at something.
Detailed explanation-5: -Endowment of natural resources. Climate.