"Two countries can achieve gains from trade even if one of the countries has an absolute advantage in the production of all goods." Explain. (includes detailed example)

In the world market, countries trade harvest-feasts they wouldnt be able to move into on their own. Countries like Cuba defines in cigar output, Japan in electronics, and Russia in move up technology. However, even if a res publica has an living advantage in producing all goods, they still will expediency from trade. Many frugal factors argon involved with trade. Among the major factors are hazard prices, comparative advantage, specialization and finally trade. Opportunity be is defined as the look upon of the best alternative forgone when an fact or activity is chosen. In other words, opportunity live is the live of choice. For font: the opportunity cost of producing a political machine is the time that couldve been used to produce something else, say paper. For a country (country A) that has an absolute advantage ( the skill to produce something using less resources than other producers use ) in producing both cars and paper, the opportunity cost of produci ng say, 1 car is the production of 3 lashings of paper. Thus, what product a country chooses to peg down on must be chosen so as to produce as more than as possible composition suffering as diminished opportunity cost as possible.

Which goods the country should specialize on should be monitored by the faithfulness of comparative advantage, which states that: the country with the final opportunity cost of producing a particular good should specialize in producing that good. By specializing on a certain good, a country lowers the opportunity cost of that good by relinquish production of other goods. For example: Say country A has an a bsolute advantage in producing cars as well ! as paper, and the opportunity cost of producing 1 car is 3 loads of paper. Country B however, produces 1 car at an opportunity cost of 6 tons of paper. If these two... If you want to get a full essay, order it on our website: BestEssayCheap.com

If you want to get a full essay, visit our page: cheap essay