Comparative Advantage model of Trade theory
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  • 1. International Business Comparative Advantage model of Trade theory Jasmeet Singh
  • 2. Comparative Advantage Ability to produce at opportunity cost Absolute Advantage Ability to produce at resources another country Opportunity Cost #the value of the next best alternative foregone as the result of making a decision Gain OC = Sacrifice Sacrifice Gain # wikipedia.org
  • 3. Y Y Jute India Jute Bangladesh 10 8 A1 A2 5 4 4 2 X 4 X 8 Sugar Sugar Oppt. Cost = Sacrifice /Gain or X/Y or Y/X (easier way) So to grow 10 tones of Jute, India have to give up 8 tones of Sugar thus 10/8 = 5/4 (point A1) and to grow8 tones of Jute, Bangladesh have to give up 4 tones Of Sugar thus 8/4=4/2 (point A2). Values are in tones
  • 4. Y Y Jute India Jute Bangladesh 10 8 A1 A2 5 4 Thank you 4 2 X 4 X 8 Sugar Sugar Oppt. Cost = Sacrifice /Gain or X/Y or Y/X (easier way) So to grow 10 tones of Jute, India have to give up 8 tones of Sugar thus 10/8 = 5/4 (point A1) and to grow8 tones of Jute, Bangladesh have to give up 4 tones Of Sugar thus 8/4=4/2 (point A2). Values are in tones