Comparative Advantage Vs. Opportunity Costs - 853 Words

Comparative advantage simply means a country or a firm is able to produce goods or services at the lowest opportunity cost. This means that the firm or country can produce a particular good at a cheaper rate. Based on this theory, the countries which specialize in the production of that have the lowest opportunity costs often bring about an increament in the economic welfare. Countries or firms tend to produce more while at the same time consuming less of the goods or services they have a comparative advantage (Ruffin, 2002). The aspects of trade are always dynamic. When a particular country is producing a given good better than another country producing another different good (with the assumption that each demands for both goods), they would easily trade. However, a challenge comes when one country produces both goods in a better way than the other country. Such a shift in the aspects of trade focuses on the differences between the theory of comparative advantage versus opportunity costs (Ruffin, 2002). The comparative advantage theory champions for the increased benefits with specialization. The countries which specialize in the production of certain goods they are perfect at producing will end up profiting in such venture. Consequently, the gains made by such firms or countries from the trade can be used to acquire goods they desire and do not produce. Comparative advantage will thus not only affect the types of goods produced but also the pricing of various goodsShow MoreRelatedExamples Of Opportunity Cost On My Daily Life881 Words   |  4 PagesQuestion 1 Three examples of opportunity cost in my daily life: 1. Whether to ride a bus or drive a car to work. Even though riding the bus ends up being monetarily cheaper, and more relaxing than driving to work (taking into account, the car note, insurance, gas, etc.), it takes three times as long to get to and from work in comparison to driving my car. Hence, I forego the opportunity to ride the bus and be more relaxed over driving my car because it allows me to spend more quality time withRead MoreDavid Ricardos The Principle Of Political Economy And Taxation1519 Words   |  7 PagesOne of the founders of modern economics was David Ricardo who developed the concept of the comparative advantage of trade. This concept is a part of the classical theory of trade and was published in 1817 in David Ricardo’s book entitled the Principles of Political Economy and Taxation (Appleyard Field, 2014, p. 30). This paper will address the effectiveness of this concept as it has been applied to real-world international trade after the General Agreement in Trade and Tariffs (GATT) was signedRead MoreA Comparative Advantage And Export Capital Intensive Commodities Based On Their Country Of Origin Essay1579 Words   |  7 PagesCompanies tend to be most competitive when they can benefit from comparative advantage in their country of origin. According to the Heckscher-Ohlin model which incorporates realistic production characteristics into Ricardo’s (1817) theory of comparative advantage, â€Å"capital abundant countries will export capital intensive goods.† (Suranovic, 2006) Putting this theorem into perspective, the USA has a comparative advantage and exports capital intensive commodities based on its relative abundance ofRead MorePerceptual Mapping Of A Product Or Brand1120 Words   |  5 Pagesdisplayed comparative to their competition. Perceptual maps are often used to help the organization to classify a positioning strategy. Perceptual mapping graph is useful to find out strength and weakness compare to other company product. Also, it helps to recognize the competitive advantage for the product. Moreover, it finds the market opportunity. It shows the empty space where brand or product has opportunities to improve their product quality and retain or gain competitive advantage. In perpetualRead MoreEcon 1012740 Words   |  11 Pagesissues †¢ Bad corporate responsibility The â€Å"Economic† way of thinking Choice under scarcity = trade offs Opportunity cost: the highest valued alternative that you give up to get something. Choices at the â€Å"margin† †¢ We look at the tradeoffs â€Å"at the margin† Marginal benefit (MB): benefit from an incremental increase in an activity. Marginal cost (MC): opportunity cost from an incremental increase in an activity. People respond to incentives MBMC= do more of an activity MB doesRead MoreNucor at a Crossroads1363 Words   |  6 Pagesovercapacity. Nucor’s only opportunity for growth seems to be to expand into the production of flat sheet metal. However, to compete in that area, Nucor would need to invest in a very risky new technology, a thin-slab casting plant that, if successful, would allow Nucor to manufacture flat sheet metal with a low minimum efficient scale and a low marginal cost of production. This case will examine Nucor’s history, the impacts of entering the thin-slab casting business, the advantages Nucor would reap, andRead MoreNucor at Crossroads1352 Words   |  6 Pagesovercapacity. Nucor’s only opportunity for growth seems to be to expand into the production of flat sheet metal. However, to compete in that area, Nucor would need to invest in a very risky new technology, a thin-slab casting plant that, if successful, would allow Nucor to manufacture flat sheet metal with a low minimum efficient scale and a lo w marginal cost of production. This case will examine Nucor’s history, the impacts of entering the thin-slab casting business, the advantages Nucor would reap, andRead MoreImport Substitution vs. Export Promotion2959 Words   |  12 PagesImport Substitution vs. Export Promotion Econ 240 Term Paper Group (19) Members: Amjad Hussain (13020031) Awais Javed (13020529) Fahd Mukaddam (13020407) Haider Shah (13020528) Hassan Jamil (13020023) Muhammad Bilal Ayub (13020413) Words (using page 2): 371*7 = 2597 IS vs. EP 2 How do the strategies of international trade affect growth? Why at times countries adopted different strategies of international trade? How does Import Substitution Industrialization weigh against Export Promotion asRead MoreAlliance Management At Forbes Marshall1413 Words   |  6 Pagesenergy conservation in Asia, Europe and North America. This report will highlight why FM chose to engage in alliances instead of acquisitions as its primary method of creating a competitive advantage as an innovative global manufacturing firm. Horizontal integration strategies offer certain similar advantages but have various differences that are attractive to companies depending on their objectives and ultimately their risk appetite. Strategic alliances and acquisitions both lead to operationalRead MoreFair Trade Vs. Free Trade1295 Words   |  6 PagesFair Trade vs. Free Trade The economic systems free trade and fair trade in like manner apply Foucault’s triangle of power and totalitarian knowledge. Specifically, I will analyze what negative effects the lack of subjugated knowledge causes within these system s foundations and their future betterment through Foucault’s lessons. As a rule, â€Å"most of the evil in this world is done by people with the best intentions† (T.S. Eliot). On October 1947, 23 nations in Geneva signed the General Agreement