Principle of comparative advantage
•
0 likes•312 views
This document discusses the principles of comparative advantage and absolute advantage in international trade. It explains that comparative advantage refers to a country's ability to produce a good at a lower opportunity cost than other countries, even if it is not the most efficient overall producer. The document provides examples to illustrate comparative advantage between two countries in producing cotton and wheat. It shows that both countries can benefit from specializing in the good they have a comparative advantage in and trading, resulting in overall surplus gains. Some assumptions and limitations of the comparative advantage model are also outlined.
Report
Share
Report
Share
Recommended
Principle of comparative advantage & competitive advantage
Principle of Comparative and competitive advantage in economics and comparison of both the principles is described in the slide through which the reader will able to explore his/her knowledge about the types of advantage in economics.
MARKET EFFICIENCY.pptx
A brief understanding of market efficiency. this ppt includes a definition of market efficiency, what are the factors to be considered, degree of ME-
first-degree,
second degree
third degree,
why the study of market efficiency is important.
An example to understand.
Market Integration & Price Spread
This document discusses various concepts related to market integration, marketing efficiency, marketing costs, market margins, and price spreads in agricultural markets. It defines these terms and discusses different types of market integration like horizontal, vertical, and conglomeration integration. It also identifies factors that affect marketing costs such as perishability, bulkiness, need for storage and processing, and number of middlemen involved. The document provides ways to measure marketing efficiency and reduce marketing costs.
MARKETING EFFICIENCY MARGINS & COSTS
MARKETING EFFICIENCY MARGINS & COSTS is very important topic to describe the importance of marketing system
Marketing efficiency, Market margin and Marketing cost
Marketing efficiency is measured as the ratio of market output to market input. It can be improved by reducing costs for the same level of satisfaction or increasing satisfaction at a given cost. Marketing costs include all costs incurred by producers and intermediaries in moving products from farms to consumers. Marketing margins are measured as the differences between prices at successive stages of marketing. Common approaches to assessing marketing efficiency include calculating output-to-input ratios, total marketing costs, producer prices received, and consumer prices paid. Factors like perishability, bulkiness, and supply irregularity influence marketing costs.
Agribuisness Management
The document discusses agribusiness and marketing. It defines agribusiness as the complex system involved in bringing food and fiber to consumers, including farming as well as suppliers, processors, wholesalers, retailers, and transporters. Marketing serves important functions in agribusiness like facilitating exchange between producers and consumers and adding value through processing and transportation. Effective marketing requires understanding consumer needs and involves planning, organizing, directing, and controlling activities.
Agriculture price policy
This document discusses India's agriculture pricing policy. It outlines the objectives of the policy which include raising farmer productivity and incomes. The key elements are fixing prices for agricultural products, inputs, and balancing consumer and farmer interests. Instruments used include minimum support prices, market intervention schemes, and the public distribution system to ensure stable supplies and prices. The policy aims to incentivize production through stable incomes while protecting consumers.
Lecture 14 Farm Inventory
For undergraduate agricultural students of the course ‘Ag. Econ. 6.4 Farm Management, Production, and Resource Economics (2+1)’ of Junagadh Agricultural University, Gujarat and other State Agricultural Universities in India.
Recommended
Principle of comparative advantage & competitive advantage
Principle of Comparative and competitive advantage in economics and comparison of both the principles is described in the slide through which the reader will able to explore his/her knowledge about the types of advantage in economics.
MARKET EFFICIENCY.pptx
A brief understanding of market efficiency. this ppt includes a definition of market efficiency, what are the factors to be considered, degree of ME-
first-degree,
second degree
third degree,
why the study of market efficiency is important.
An example to understand.
Market Integration & Price Spread
This document discusses various concepts related to market integration, marketing efficiency, marketing costs, market margins, and price spreads in agricultural markets. It defines these terms and discusses different types of market integration like horizontal, vertical, and conglomeration integration. It also identifies factors that affect marketing costs such as perishability, bulkiness, need for storage and processing, and number of middlemen involved. The document provides ways to measure marketing efficiency and reduce marketing costs.
MARKETING EFFICIENCY MARGINS & COSTS
MARKETING EFFICIENCY MARGINS & COSTS is very important topic to describe the importance of marketing system
Marketing efficiency, Market margin and Marketing cost
Marketing efficiency is measured as the ratio of market output to market input. It can be improved by reducing costs for the same level of satisfaction or increasing satisfaction at a given cost. Marketing costs include all costs incurred by producers and intermediaries in moving products from farms to consumers. Marketing margins are measured as the differences between prices at successive stages of marketing. Common approaches to assessing marketing efficiency include calculating output-to-input ratios, total marketing costs, producer prices received, and consumer prices paid. Factors like perishability, bulkiness, and supply irregularity influence marketing costs.
Agribuisness Management
The document discusses agribusiness and marketing. It defines agribusiness as the complex system involved in bringing food and fiber to consumers, including farming as well as suppliers, processors, wholesalers, retailers, and transporters. Marketing serves important functions in agribusiness like facilitating exchange between producers and consumers and adding value through processing and transportation. Effective marketing requires understanding consumer needs and involves planning, organizing, directing, and controlling activities.
Agriculture price policy
This document discusses India's agriculture pricing policy. It outlines the objectives of the policy which include raising farmer productivity and incomes. The key elements are fixing prices for agricultural products, inputs, and balancing consumer and farmer interests. Instruments used include minimum support prices, market intervention schemes, and the public distribution system to ensure stable supplies and prices. The policy aims to incentivize production through stable incomes while protecting consumers.
Lecture 14 Farm Inventory
For undergraduate agricultural students of the course ‘Ag. Econ. 6.4 Farm Management, Production, and Resource Economics (2+1)’ of Junagadh Agricultural University, Gujarat and other State Agricultural Universities in India.
Producers surplus and market structure conduct performance
relationship ,types of producer surplus, selling behaviour of farmer, factor affecting marketable surplus, market structure, features , components of market, types of market structure , market structure dynamics, market conduct, market performance, performance and changing markets
Theory of Comparative Advantage
The theory of comparative advantage, first developed by English economist David Ricardo in 1817, is a theory about the potential gains from trade for companies, countries or people that arise on account of differences in factor endowments or technological progress.
Lecture 7
This document discusses the three laws of returns known to economists: the law of diminishing returns, the law of increasing returns, and the law of constant returns. It provides examples and explanations of each law, how they operate in different contexts like agriculture, and the assumptions behind each law. It also discusses returns to scale and how scale of production can result in increasing, constant, or diminishing returns depending on the phase of production.
Market structure
This document defines market structure and its key components. Market structure refers to the characteristics of a market, including the number and size of firms, level of product differentiation, barriers to entry, access to information, and degree of integration. These components influence firm conduct and market performance. The document outlines different types of market structures ranging from perfect competition to monopoly, and how market dynamics can change over time due to factors like technological changes.
Agricultural market intelligence system in india
The Agricultural Market Intelligence System in India was established to collect and disseminate market information through the Domestic and Export Market Intelligence Cell of Tamil Nadu Agricultural University in order to provide price forecasts and market intelligence to farmers and traders to help them make informed decisions about production, marketing, storage and quality standards to maximize prices. The system collects historical market and price data, conducts surveys, and disseminates forecasts and recommendations via its website and SMS to help reduce price volatility for farmers.
Regulated markets system in India
This presentation says all about Regulation of agricultural marketing, regulated markets, state agricultural marketing boards, recent initiatives for improving agricultural marketing.
Farm Budgeting
This document discusses farm budgeting, including partial and complete budgeting. It defines farm budgeting as estimating the costs, returns, and net income of a farm or enterprise in monetary terms based on an advance farm plan. Partial budgeting estimates the costs and returns of a particular enterprise, while complete budgeting prepares a budget for the entire farm, considering all crops, livestock, production methods, and marketing aspects consolidated into a single estimate of total costs and returns. The document outlines the differences between partial and complete budgeting and their uses for minor versus major changes in farm operations. It also discusses the advantages of farm budgeting for evaluating plans, improving efficiency, and formulating agricultural policies.
Lecture 19 Risk and Uncertainty
For the undergraduate students of the course: Ag. Econ. 6.4 Farm Management, Production and Resource Economics (2+1) of Junagadh Agricultural University, Gujarat and other SAU's in India.
Agricultural value chain analysis
The document discusses agricultural value chains. A value chain describes the range of activities and actors involved in bringing an agricultural product from production to final consumption, with value added at each stage. It analyzes the factors that influence performance at each stage, from input suppliers to final buyers. Value chain analysis is a useful tool to understand trends, identify problems and opportunities for improvement, and inform policy interventions.
Lecture 12 economic principles applicable to farm management
For undergraduate agricultural students of the course ‘Ag. Econ. 6.4 Farm Management, Production, and Resource Economics (2+1)’ of Junagadh Agricultural University, Gujarat and other State Agricultural Universities in India.
Farm planning and budgeting
This document discusses farm planning and budgeting. It provides information on:
- What a farm plan is and its objectives to maximize profits through efficient resource use.
- The process of farm planning which involves allocating resources, choosing crop combinations, and making adjustments.
- Components and steps of farm planning like preparing maps, recording farm history, and planning labor needs.
- Types of budgets including partial, enterprise, cash flow, and complete budgets. Budgets estimate costs, returns, and profits to evaluate plans and guide resource use.
Business cycle
The document discusses business cycles, which are periodic fluctuations in economic activity measured by variables like GDP and employment. Each business cycle has four phases - expansion, peak, contraction, and trough. Causes of business cycles include both external factors like wars, scientific developments, and weather as well as internal factors like over-investment, under-consumption, credit expansion, and psychological factors like changing optimism and pessimism. Measures to control business cycles include fiscal and monetary policy, economic reforms, international cooperation, planning, and creating investment-friendly environments.
Agricultural policy and agribusiness
This chapter is intended to ensure that students understand why agricultural policies are needed in both developing and developed countries. It will also shed light on the major forces that cause policy change, reasons for government involvement in agriculture and the place of agricultural policies in the future.
Agricultural marketing basics
This document discusses various ways that agricultural markets can be classified or categorized. It describes 12 different dimensions by which markets are commonly differentiated, such as by location, area covered, time span, volume of transactions, degree of competition, and more. For each dimension, it provides examples of the types of markets that would fall under each classification. The document serves as a comprehensive overview of the framework by which agricultural markets are studied and analyzed.
Farm Management - Product-Product Relationship
This document includes appropriate description of about Product-Product Relationship Management, MRPS, Types of Products, PPC etc.
Agriculture Production Economics
Agricultural production economics is concerned with optimizing resource use on farms to maximize profits. It applies microeconomic principles to production decisions at the farm level and higher levels. The goals are to determine the most efficient use of resources like land, labor, capital and management and to analyze how production responds to changes in prices and technology. The subject matter includes production relationships, costs, optimization of resource use, and yield analysis. Production economics provides a framework to assist farmers and policymakers in production and resource allocation decisions.
Comparative vs absolute advantage
According to the document, the theories of absolute advantage and comparative advantage are discussed. Absolute advantage refers to a country's ability to produce more of a good than another country with the same resources. Comparative advantage refers to a country's ability to produce a good at a lower opportunity cost than other countries. It is beneficial for countries to specialize in goods they have a comparative advantage in producing and to trade for other goods, as this allows gains from specialization and trade for all countries.
Agricultural production
This document discusses key concepts in agricultural production economics including:
1. It defines input-output relationships and different types of production functions including continuous, discrete, very short run, short run, and long run production functions.
2. It categorizes agricultural resources as fixed, variable, stock, and flow and explains how the distinction between stock and flow resources can be confusing depending on the time period considered.
3. It outlines the three basic types of relationships in production as factor-factor, product-product, and factor-product and describes how production functions model the input-output relationship.
4. It describes the different returns to scale that can exist in production including constant, increasing, and diminishing
Lecture 1
It is an introduction to agribusiness which includes the short history of evolution of the agribusiness, its importance, scope or areas of agribusiness. It also includes the distinctive features of agribusiness management.
CObb Douglas - 1.ppt
The document discusses the Cobb-Douglas production function. It defines the production function and its key inputs of capital, labor, land, and entrepreneurship. It then describes the Cobb-Douglas production function, which studies the relationship between two inputs - labor and capital - and total output. The basic formula for the Cobb-Douglas production function is presented. Properties of the Cobb-Douglas production function like constant returns to scale are explained using a graph. Criticisms of the Cobb-Douglas production function for only considering two inputs and assuming constant returns to scale are also summarized.
Absolute advantage theory
This document discusses the theory of comparative advantage. It provides background on the theory, which was first described by Robert Torrens in 1815 and later formalized by David Ricardo. Ricardo used a numerical example to show that even if one country has an absolute advantage in all goods, both countries can still benefit from trade based on their comparative advantages. The document also outlines Ricardo's assumptions, provides his numerical example comparing Kenya and Ethiopia, and discusses limitations of the theory.
International Trade Theories
The document discusses several theories of international trade. It begins by explaining mercantilism, which held that countries should maintain a trade surplus. It then explains Adam Smith's theory of absolute advantage, which argues that countries should specialize in what they can produce most efficiently. David Ricardo further developed this with his theory of comparative advantage, which showed that even if one country is more efficient in all products, both can still benefit from trade by focusing on their comparative advantages. The theories aim to achieve efficient allocation of global resources and maximize production at lowest cost through international specialization and trade.
More Related Content
What's hot
Producers surplus and market structure conduct performance
relationship ,types of producer surplus, selling behaviour of farmer, factor affecting marketable surplus, market structure, features , components of market, types of market structure , market structure dynamics, market conduct, market performance, performance and changing markets
Theory of Comparative Advantage
The theory of comparative advantage, first developed by English economist David Ricardo in 1817, is a theory about the potential gains from trade for companies, countries or people that arise on account of differences in factor endowments or technological progress.
Lecture 7
This document discusses the three laws of returns known to economists: the law of diminishing returns, the law of increasing returns, and the law of constant returns. It provides examples and explanations of each law, how they operate in different contexts like agriculture, and the assumptions behind each law. It also discusses returns to scale and how scale of production can result in increasing, constant, or diminishing returns depending on the phase of production.
Market structure
This document defines market structure and its key components. Market structure refers to the characteristics of a market, including the number and size of firms, level of product differentiation, barriers to entry, access to information, and degree of integration. These components influence firm conduct and market performance. The document outlines different types of market structures ranging from perfect competition to monopoly, and how market dynamics can change over time due to factors like technological changes.
Agricultural market intelligence system in india
The Agricultural Market Intelligence System in India was established to collect and disseminate market information through the Domestic and Export Market Intelligence Cell of Tamil Nadu Agricultural University in order to provide price forecasts and market intelligence to farmers and traders to help them make informed decisions about production, marketing, storage and quality standards to maximize prices. The system collects historical market and price data, conducts surveys, and disseminates forecasts and recommendations via its website and SMS to help reduce price volatility for farmers.
Regulated markets system in India
This presentation says all about Regulation of agricultural marketing, regulated markets, state agricultural marketing boards, recent initiatives for improving agricultural marketing.
Farm Budgeting
This document discusses farm budgeting, including partial and complete budgeting. It defines farm budgeting as estimating the costs, returns, and net income of a farm or enterprise in monetary terms based on an advance farm plan. Partial budgeting estimates the costs and returns of a particular enterprise, while complete budgeting prepares a budget for the entire farm, considering all crops, livestock, production methods, and marketing aspects consolidated into a single estimate of total costs and returns. The document outlines the differences between partial and complete budgeting and their uses for minor versus major changes in farm operations. It also discusses the advantages of farm budgeting for evaluating plans, improving efficiency, and formulating agricultural policies.
Lecture 19 Risk and Uncertainty
For the undergraduate students of the course: Ag. Econ. 6.4 Farm Management, Production and Resource Economics (2+1) of Junagadh Agricultural University, Gujarat and other SAU's in India.
Agricultural value chain analysis
The document discusses agricultural value chains. A value chain describes the range of activities and actors involved in bringing an agricultural product from production to final consumption, with value added at each stage. It analyzes the factors that influence performance at each stage, from input suppliers to final buyers. Value chain analysis is a useful tool to understand trends, identify problems and opportunities for improvement, and inform policy interventions.
Lecture 12 economic principles applicable to farm management
For undergraduate agricultural students of the course ‘Ag. Econ. 6.4 Farm Management, Production, and Resource Economics (2+1)’ of Junagadh Agricultural University, Gujarat and other State Agricultural Universities in India.
Farm planning and budgeting
This document discusses farm planning and budgeting. It provides information on:
- What a farm plan is and its objectives to maximize profits through efficient resource use.
- The process of farm planning which involves allocating resources, choosing crop combinations, and making adjustments.
- Components and steps of farm planning like preparing maps, recording farm history, and planning labor needs.
- Types of budgets including partial, enterprise, cash flow, and complete budgets. Budgets estimate costs, returns, and profits to evaluate plans and guide resource use.
Business cycle
The document discusses business cycles, which are periodic fluctuations in economic activity measured by variables like GDP and employment. Each business cycle has four phases - expansion, peak, contraction, and trough. Causes of business cycles include both external factors like wars, scientific developments, and weather as well as internal factors like over-investment, under-consumption, credit expansion, and psychological factors like changing optimism and pessimism. Measures to control business cycles include fiscal and monetary policy, economic reforms, international cooperation, planning, and creating investment-friendly environments.
Agricultural policy and agribusiness
This chapter is intended to ensure that students understand why agricultural policies are needed in both developing and developed countries. It will also shed light on the major forces that cause policy change, reasons for government involvement in agriculture and the place of agricultural policies in the future.
Agricultural marketing basics
This document discusses various ways that agricultural markets can be classified or categorized. It describes 12 different dimensions by which markets are commonly differentiated, such as by location, area covered, time span, volume of transactions, degree of competition, and more. For each dimension, it provides examples of the types of markets that would fall under each classification. The document serves as a comprehensive overview of the framework by which agricultural markets are studied and analyzed.
Farm Management - Product-Product Relationship
This document includes appropriate description of about Product-Product Relationship Management, MRPS, Types of Products, PPC etc.
Agriculture Production Economics
Agricultural production economics is concerned with optimizing resource use on farms to maximize profits. It applies microeconomic principles to production decisions at the farm level and higher levels. The goals are to determine the most efficient use of resources like land, labor, capital and management and to analyze how production responds to changes in prices and technology. The subject matter includes production relationships, costs, optimization of resource use, and yield analysis. Production economics provides a framework to assist farmers and policymakers in production and resource allocation decisions.
Comparative vs absolute advantage
According to the document, the theories of absolute advantage and comparative advantage are discussed. Absolute advantage refers to a country's ability to produce more of a good than another country with the same resources. Comparative advantage refers to a country's ability to produce a good at a lower opportunity cost than other countries. It is beneficial for countries to specialize in goods they have a comparative advantage in producing and to trade for other goods, as this allows gains from specialization and trade for all countries.
Agricultural production
This document discusses key concepts in agricultural production economics including:
1. It defines input-output relationships and different types of production functions including continuous, discrete, very short run, short run, and long run production functions.
2. It categorizes agricultural resources as fixed, variable, stock, and flow and explains how the distinction between stock and flow resources can be confusing depending on the time period considered.
3. It outlines the three basic types of relationships in production as factor-factor, product-product, and factor-product and describes how production functions model the input-output relationship.
4. It describes the different returns to scale that can exist in production including constant, increasing, and diminishing
Lecture 1
It is an introduction to agribusiness which includes the short history of evolution of the agribusiness, its importance, scope or areas of agribusiness. It also includes the distinctive features of agribusiness management.
CObb Douglas - 1.ppt
The document discusses the Cobb-Douglas production function. It defines the production function and its key inputs of capital, labor, land, and entrepreneurship. It then describes the Cobb-Douglas production function, which studies the relationship between two inputs - labor and capital - and total output. The basic formula for the Cobb-Douglas production function is presented. Properties of the Cobb-Douglas production function like constant returns to scale are explained using a graph. Criticisms of the Cobb-Douglas production function for only considering two inputs and assuming constant returns to scale are also summarized.
What's hot (20)
Producers surplus and market structure conduct performance
Producers surplus and market structure conduct performance
Lecture 12 economic principles applicable to farm management
Lecture 12 economic principles applicable to farm management
Similar to Principle of comparative advantage
Absolute advantage theory
This document discusses the theory of comparative advantage. It provides background on the theory, which was first described by Robert Torrens in 1815 and later formalized by David Ricardo. Ricardo used a numerical example to show that even if one country has an absolute advantage in all goods, both countries can still benefit from trade based on their comparative advantages. The document also outlines Ricardo's assumptions, provides his numerical example comparing Kenya and Ethiopia, and discusses limitations of the theory.
International Trade Theories
The document discusses several theories of international trade. It begins by explaining mercantilism, which held that countries should maintain a trade surplus. It then explains Adam Smith's theory of absolute advantage, which argues that countries should specialize in what they can produce most efficiently. David Ricardo further developed this with his theory of comparative advantage, which showed that even if one country is more efficient in all products, both can still benefit from trade by focusing on their comparative advantages. The theories aim to achieve efficient allocation of global resources and maximize production at lowest cost through international specialization and trade.
Classical Theory Of International Trade
The document discusses theories of international trade, including:
1) David Ricardo's theory of comparative advantage, which states that countries should specialize in goods they have a comparative cost advantage in.
2) Absolute and comparative differences in costs as bases for international trade according to Adam Smith and Ricardo respectively.
3) Equal differences in costs not providing a basis for trade between countries with equal production ratios.
Economics-Theories of International Trade.
This document summarizes several theories of international trade, including:
- Mercantilism, which held that nations should maximize exports and minimize imports to accumulate wealth. Jean-Baptiste Colbert was a prominent proponent.
- Adam Smith's theory of absolute advantage, which argued nations should specialize in what they produce most efficiently and trade.
- David Ricardo's theory of comparative advantage, which showed that free trade benefits all nations by allowing them to specialize according to their relative costs of production.
- The Heckscher-Ohlin theorem, which posits that countries will export goods that intensively use their abundant and cheaply available factors of production.
International trade theories
International Trade Theories document discusses several theories of international trade:
1. Mercantilism advocated accumulating wealth through exports and limiting imports using government policies.
2. Adam Smith's absolute advantage theory states that countries should specialize in goods they can produce more efficiently.
3. David Ricardo's comparative advantage theory recognizes that even without an absolute advantage, mutual trade benefits are possible if countries specialize in goods with lower opportunity costs of production.
International economics – 2 classical theories of IT
International economics –classical theories of IT
classical theories of international trade.pptx
1) Classical theories of international trade proposed by Adam Smith and David Ricardo argue that countries benefit from specializing in goods where they have a comparative advantage and from trading.
2) Ricardo's theory of comparative advantage showed that trade can benefit countries even if one country has an absolute advantage in all goods, by specializing in the good where the opportunity cost is lowest.
3) John Stuart Mill extended Ricardo's theory by explaining how reciprocal demand between countries determines the actual terms of trade that emerge from specialization and trade. The terms of trade will stabilize where the value of each country's exports equals the value of its imports.
Classical trade theory
• International Trade, basic concepts, Classical Trade Theories, Adam Smith, David Ricardo, foreign trade, specialization, efficient resource allocation, new technologies, skills, higher productivity, assumptions, two countries, perfect mobility, Transportation cost, resources are equally divided, Theory of Mercantilism, Father of Economics, Wealth of Nations, Western European economic, encourage export and discourage import, balance of export minus import, subsidies and taxes, gold was used for trading goods, abundant gold, selfish trade, zero-sum game, Theory of Absolute Advantage, one factor of production, labour, services available to their citizens, cheaper, beneficial for both the countries, specialization, Theory of Comparative Advantage, David Ricardo, absolute advantage in all the products, zero transport cost, no trade barriers, diseconomies, restrict trade.
Chapter 2 Theories Of International Trade
The document discusses various theories of international trade and barriers to trade. It describes theories such as absolute advantage, comparative advantage, Heckscher-Ohlin model, imitation gap theory, and international product life cycle theory. It also discusses tariff and non-tariff barriers that governments use to discourage imports such as import quotas, embargoes, subsidies, and technical standards. Comparative advantage theory holds that countries can benefit from trade even if one has an absolute advantage in all goods, as long as opportunity costs differ between countries.
davidricardo-12111802ccgjgffjfjffjfjfjcg3222-phpapp01.pdf
This document summarizes a presentation given by Mulama Kennedy Masinde on David Ricardo's theory of economics development. Ricardo developed theories of rent, profits, wages, and comparative advantage. He argued that rent increases as population grows and agricultural land becomes more scarce. Ricardo's theory of comparative advantage showed that free trade benefits all nations by allowing them to specialize in producing goods where they have a lower opportunity cost. The presentation covered Ricardo's key assumptions, models, and concepts, as well as criticisms of his theoretical framework.
Introduction to International Trade
The document provides an introduction to international trade, including reasons for trade, production possibilities, absolute and comparative advantage, benefits of specialization, and the relationship between specialization and trade. It defines key concepts such as absolute advantage, comparative advantage, and opportunity costs. It explains how comparative advantage allows countries to benefit from trade even if one country has an absolute advantage in all goods. Specialization according to comparative advantage results in more efficient allocation of resources and a larger quantity of outputs for trading nations.
MERCANTILISM.pptx
Mercantilism was an economic theory prominent in 16th-17th century Europe that held that national wealth and power were best served by accumulating monetary reserves, especially in the form of bullion, and by achieving an advantageous balance of trade with a positive trade balance. Governments would regulate international trade to promote exports over imports and work with domestic merchants. This contrasts with the later theory of free trade proposed by Adam Smith that argued for fewer trade barriers and specialization according to comparative advantage.
international trade and balance of payments for 2nd semester economics for BBA
This document discusses international trade and the gains from trade according to comparative advantage theory. It provides evidence that countries who liberalized trade grew faster than those who did not. While comparative advantage theory predicts patterns of trade well, it oversimplifies specialization and does not account for differences in resources or economies of scale between countries. The model also ignores potential negative impacts of trade like income distribution effects.
Tadele Power Point.pptx
This document discusses international trade theory and history. It begins with an overview of key concepts in international trade like trade, trade policy, and trade agreements. It then covers the history of international trade from ancient times through modern trade agreements like the GATT. The document also summarizes theories of international trade like mercantilism, absolute advantage, comparative advantage, and factor endowment theories. It provides examples to illustrate comparative advantage and factor endowment theories.
Daniels06 im
This document provides an outline for a chapter that discusses international trade and factor mobility theory. It begins with an opening case study on Costa Rica's economic transformation through international trade and foreign investment policies. The chapter then covers various trade theories including mercantilism, absolute advantage, comparative advantage, and theories explaining trade patterns based on country size, factor proportions, and country similarity. It also discusses how the location of production shifts over the product lifecycle and how national competitive advantages can develop and change. In concluding, the chapter discusses the relationship between international trade and the mobility of production factors like labor and capital.
Basics of International Trade.ppt
This document discusses international trade theory, including:
1) It outlines two basic questions in international trade - what determines trade and why countries gain from trade.
2) It describes the historical development of trade theory from mercantilism to absolute advantage and comparative advantage.
3) It provides examples to illustrate comparative advantage theory and opportunity cost, showing how countries can benefit from specializing in and trading goods they have a comparative lower cost of production in.
International Trade
This document provides an overview of key concepts in international trade including:
- The principles of absolute and comparative advantage which form the basis for beneficial trade between countries.
- Arguments for free trade and reasons countries engage in protectionism such as tariffs or quotas.
- Different levels of economic integration like free trade areas or customs unions.
- How terms of trade measure the exchange rate between a country's exports and imports.
Foreign trade
International Trade- Basics, Resource Endowment, Adam Smith's Theory of Absolute advantage, Richard's theory of Comparative Advantage
RICARDO-1.ppt it tells information theory
1) Adam Smith introduced the concept of absolute advantage, where countries should trade based on which goods they can produce more efficiently.
2) David Ricardo later developed the theory of comparative advantage, showing that even if one country is less efficient overall, both countries can still benefit from trade by each specializing in what they have a comparative rather than absolute advantage in producing.
3) Ricardo's theory assumes two countries and two goods, constant costs, and labor as the only factor of production. It demonstrates that when countries specialize according to their comparative advantages, global production is maximized.
RICARDO-1 (1).ppt
Adam Smith first proposed that absolute advantage in production provides the basis for mutually beneficial trade. David Ricardo later refined this to show that comparative advantage, not absolute advantage, is the key - a country should specialize in what it can produce relatively more efficiently. Empirical studies have supported Ricardo's theory, finding nations export more of goods where they have lower relative production costs. While useful, Ricardo's model does not fully explain differences in productivity or trade's impact on factor incomes.
Similar to Principle of comparative advantage (20)
International economics – 2 classical theories of IT
International economics – 2 classical theories of IT
davidricardo-12111802ccgjgffjfjffjfjfjcg3222-phpapp01.pdf
davidricardo-12111802ccgjgffjfjffjfjfjcg3222-phpapp01.pdf
international trade and balance of payments for 2nd semester economics for BBA
international trade and balance of payments for 2nd semester economics for BBA
More from BinduHA
Optimal Provision of Public and Private Goods
This document discusses the optimal provision of public and private goods. It defines public goods as non-excludable and non-rival, meaning one person's consumption does not reduce availability or prevent another's consumption. Private goods are excludable and rival. The document outlines how to determine the optimal quantity of each good where social marginal benefit equals marginal cost. For public goods, the optimal quantity is where the sum of individual marginal rates of substitution equals the marginal rate of transformation. However, free riders who benefit without paying can cause underprovision of public goods. The document provides an example of beekeeping providing a pollination public good to apple orchards.
Multi market Estimation
Multi-market models allow estimation of policy impacts through a system of supply and demand equations for closely linked markets. They capture direct effects as well as indirect effects through price and quantity changes in these markets. This provides a more accurate assessment than single-market models or general equilibrium models, which model all markets. The method requires data on income, prices, and consumption to parameterize demand and supply and model how policy changes propagate through the selected markets. It has been applied particularly to agricultural policies where food markets are linked. However, multi-market models only consider indirect effects in the modeled markets and ignore linkages elsewhere.
Marine Products Export Development Authority (MPEDA)
The Marine Products Export Development Authority (MPEDA) was established in 1972 with headquarters in Kochi, India. Its mandate is to promote the marine products industry with a focus on exports. MPEDA's functions include registering seafood export facilities, collecting trade information, promoting Indian marine products overseas, supporting infrastructure development, regulating quality, conducting research, and providing training. It operates laboratories and a quality certification logo program. MPEDA works to develop the marine products sector in India and increase seafood exports.
Balance of Payments
The document provides information about a country's Balance of Payments (BOP), including:
- BOP is a systematic record of all economic transactions between residents of a country and the rest of the world over a period of time.
- The key components of BOP are the current account (covering trade in goods and services), capital account (covering movement of capital), and official reserves account.
- Disequilibriums in BOP can be caused by economic, political, and social factors and governments use various monetary, trade, and other measures to correct BOP deficits.
US China trade war
The document summarizes the US-China trade war and its impact on the Indian economy. It discusses how protectionism led to the trade war as the US accused China of intellectual property theft, currency manipulation, and large trade deficits. The timeline of tariffs imposed by the US and China in retaliation is provided. The global economic impact included reduced GDP, exports, and foreign investment. Specifically, the US faced higher prices and economic uncertainty while China saw export losses and company bankruptcies. India benefited to a small extent through some trade diversions but could have captured more opportunities. The trade war negatively impacted global agriculture and was temporarily eased by a US-China trade deal.
Microeconomics and macroeconomics
Microeconomics analyzes individual units like firms and markets, focusing on allocation of resources and pricing. It examines efficiency in production, consumption, and allocation. Theories include pricing, distribution, and economic welfare. Macroeconomics studies large aggregates like income, employment, and prices. It analyzes determination of income and employment, price levels, growth, and distribution shares. Both help form economic policies and individual decision making.
Institutions vs organisations
Institutions are defined as collective constraints that structure human interaction, including formal constraints like laws and regulations, and informal constraints like social norms. Organizations are groups of individuals united to achieve common goals, and can include political, economic, social, and educational bodies. The key differences between institutions and organizations are that institutions have broader concepts and are decentralized, while organizations have more narrow concepts and specialized roles. Institutions also focus on delivering values and knowledge to society, rather than profit or services like organizations.
Financial instruments and methods
This document discusses various financial instruments and methods. It defines financial instruments as contracts that create financial assets and liabilities. It describes the main types of financial instruments as cash instruments like securities and loans, and derivative instruments whose value is based on underlying assets. It also discusses various classification of instruments like debt, equity and foreign exchange. The document then explains four common financial methods used by banks - overdraft, cash credit, fixed loans, and discounting bills of exchange. It provides details on how the Kisan Credit Card scheme works for farmers in India and the features of core banking systems and e-banking/internet banking services.
Keynesian economics
John Maynard Keynes was an influential 20th century English economist known for developing Keynesian economics. Some of his key ideas included that employment is determined by effective demand, which depends on aggregate supply and demand. Consumption and investment determine aggregate demand, with consumption depending on income and propensity to consume. The multiplier effect means that a change in investment leads to a proportional change in national income and output. Interest rates are determined by the supply of money and liquidity preference. Keynes argued governments could fight unemployment through fiscal policy like taxation and public investment.
More from BinduHA (9)
Marine Products Export Development Authority (MPEDA)
Marine Products Export Development Authority (MPEDA)
Recently uploaded
Bridging the gap: Online job postings, survey data and the assessment of job ...
Bridging the gap: Online job postings, survey data and the assessment of job ...Labour Market Information Council | Conseil de l’information sur le marché du travail
OJP data from firms like Vicinity Jobs have emerged as a complement to traditional sources of labour demand data, such as the Job Vacancy and Wages Survey (JVWS). Ibrahim Abuallail, PhD Candidate, University of Ottawa, presented research relating to bias in OJPs and a proposed approach to effectively adjust OJP data to complement existing official data (such as from the JVWS) and improve the measurement of labour demand.一比一原版(UCL毕业证)伦敦大学|学院毕业证如何办理
UCL硕士学位证成绩单【微信95270640】《如何办理伦敦大学|学院毕业证认证》【办证Q微信95270640】《伦敦大学|学院文凭毕业证制作》《UCL学历学位证书哪里买》办理伦敦大学|学院学位证书扫描件、办理伦敦大学|学院雅思证书！
国际留学归国服务中心《如何办伦敦大学|学院毕业证认证》《UCL学位证书扫描件哪里买》实体公司，注册经营，行业标杆，精益求精！
专业为留学生办理伦敦大学|学院伦敦大学|学院毕业证offer【100%存档可查】留学全套申请材料办理。本公司承诺所有毕业证成绩单成品全部按照学校原版工艺对照一比一制作和学校一样的羊皮纸张保证您证书的质量！
如果你回国在学历认证方面有以下难题请联系我们我们将竭诚为你解决认证瓶颈
1所有材料真实但资料不全无法提供完全齐整的原件。【如：成绩单丶毕业证丶回国证明等材料中有遗失的。】
2获得真实的国外最终学历学位但国外本科学历就读经历存在问题或缺陷。【如：国外本科是教育部不承认的或者是联合办学项目教育部没有备案的或者外本科没有正常毕业的。】
3学分转移联合办学等情况复杂不知道怎么整理材料的。时间紧迫自己不清楚递交流程的。
如果你是以上情况之一请联系我们我们将在第一时间内给你免费咨询相关信息。我们将帮助你整理认证所需的各种材料.帮你解决国外学历认证难题。
国外伦敦大学|学院伦敦大学|学院毕业证offer办理方法：
1客户提供办理信息：姓名生日专业学位毕业时间等（如信息不确定可以咨询顾问：我们有专业老师帮你查询伦敦大学|学院伦敦大学|学院毕业证offer）；
2开始安排制作伦敦大学|学院毕业证成绩单电子图；
3伦敦大学|学院毕业证成绩单电子版做好以后发送给您确认；
4伦敦大学|学院毕业证成绩单电子版您确认信息无误之后安排制作成品；
5伦敦大学|学院成品做好拍照或者视频给您确认；
6快递给客户（国内顺丰国外DHLUPS等快读邮寄）。吃吃地笑山娃很精神越逛越起劲父亲却越逛越疲倦望着父亲呵欠连天的样子山娃也说困了累了回家吧小屋闷罐一般头顶上的三叶扇彻夜呜呜作响搅得满屋热气腾腾也搅得山娃心烦意乱父亲一上床就呼呼大睡山娃却辗转反侧睡不着山娃一次又一次摸索着爬起来一遍又一遍地用暖乎乎的冷水擦身往水泥地板上一勺一勺的洒水也不知过了多久山娃竟迷迷糊糊地睡着了迷迷糊糊地又闻到了闹钟刺耳的铃声和哐咣的关门声待山娃醒来时父亲早已上班去了床头总们
Who Is the Largest Producer of Soybean in India Now.pdf
This blog explores the current largest producer of soybean in India and the factors contributing to their dominance.
在线办理(GU毕业证书)美国贡萨加大学毕业证学历证书一模一样
学校原件一模一样【微信：741003700 】《(GU毕业证书)美国贡萨加大学毕业证学历证书》【微信：741003700 】学位证，留信认证（真实可查，永久存档）原件一模一样纸张工艺/offer、雅思、外壳等材料/诚信可靠,可直接看成品样本，帮您解决无法毕业带来的各种难题！外壳，原版制作，诚信可靠，可直接看成品样本。行业标杆！精益求精，诚心合作，真诚制作！多年品质 ,按需精细制作，24小时接单,全套进口原装设备。十五年致力于帮助留学生解决难题，包您满意。
本公司拥有海外各大学样板无数，能完美还原。
1:1完美还原海外各大学毕业材料上的工艺：水印，阴影底纹，钢印LOGO烫金烫银，LOGO烫金烫银复合重叠。文字图案浮雕、激光镭射、紫外荧光、温感、复印防伪等防伪工艺。材料咨询办理、认证咨询办理请加学历顾问Q/微741003700
【主营项目】
一.毕业证【q微741003700】成绩单、使馆认证、教育部认证、雅思托福成绩单、学生卡等！
二.真实使馆公证(即留学回国人员证明,不成功不收费)
三.真实教育部学历学位认证（教育部存档！教育部留服网站永久可查）
四.办理各国各大学文凭(一对一专业服务,可全程监控跟踪进度)
如果您处于以下几种情况：
◇在校期间，因各种原因未能顺利毕业……拿不到官方毕业证【q/微741003700】
◇面对父母的压力，希望尽快拿到；
◇不清楚认证流程以及材料该如何准备；
◇回国时间很长，忘记办理；
◇回国马上就要找工作，办给用人单位看；
◇企事业单位必须要求办理的
◇需要报考公务员、购买免税车、落转户口
◇申请留学生创业基金
留信网认证的作用:
1:该专业认证可证明留学生真实身份
2:同时对留学生所学专业登记给予评定
3:国家专业人才认证中心颁发入库证书
4:这个认证书并且可以归档倒地方
5:凡事获得留信网入网的信息将会逐步更新到个人身份内，将在公安局网内查询个人身份证信息后，同步读取人才网入库信息
6:个人职称评审加20分
7:个人信誉贷款加10分
8:在国家人才网主办的国家网络招聘大会中纳入资料，供国家高端企业选择人才
OAT_RI_Ep20 WeighingTheRisks_May24_Trade Wars.pptx
How will new technology fields affect economic trade?
Pensions and housing - Pensions PlayPen - 4 June 2024 v3 (1).pdf
Wayhome's analysis of the UK market and how pension schemes can help solve the problems it presents younger people
BONKMILLON Unleashes Its Bonkers Potential on Solana.pdf
Introducing BONKMILLON - The Most Bonkers Meme Coin Yet
Let's be real for a second – the world of meme coins can feel like a bit of a circus at times. Every other day, there's a new token promising to take you "to the moon" or offering some groundbreaking utility that'll change the game forever. But how many of them actually deliver on that hype?
5 Tips for Creating Standard Financial Reports
Well-crafted financial reports serve as vital tools for decision-making and transparency within an organization. By following the undermentioned tips, you can create standardized financial reports that effectively communicate your company's financial health and performance to stakeholders.
Economic Risk Factor Update: June 2024 [SlideShare]
May’s reports showed signs of continued economic growth, said Sam Millette, director, fixed income, in his latest Economic Risk Factor Update.
For more market updates, subscribe to The Independent Market Observer at https://blog.commonwealth.com/independent-market-observer.
Seminar: Gender Board Diversity through Ownership Networks
Seminar on gender diversity spillovers through ownership networks at FAME|GRAPE. Presenting novel research. Studies in economics and management using econometrics methods.
一比一原版(UCSB毕业证)圣芭芭拉分校毕业证如何办理
UCSB毕业证文凭证书【微信95270640】办理圣芭芭拉分校毕业证成绩单（Q微信95270640）毕业证学历认证OFFER专卖国外文凭学历学位证书办理澳洲文凭|澳洲毕业证,澳洲学历认证,澳洲成绩单 澳洲offer,教育部学历认证及使馆认证永久可查 ,国外毕业证|国外学历认证,国外学历文凭证书 UCSB毕业证，UCSB毕业证，UCSB毕业证，UCSB毕业证，UCSB毕业证，UCSB毕业证，UCSB毕业证，专业为留学生办理毕业证、成绩单、使馆留学回国人员证明、教育部学历学位认证、录取通知书、Offer、
【实体公司】办圣芭芭拉分校圣芭芭拉分校毕业证成绩单学历认证学位证文凭认证办留信网认证办留服认证办教育部认证（网上可查实体公司专业可靠）
— — — 留学归国服务中心 — — -
【主营项目】
一.圣芭芭拉分校毕业证成绩单使馆认证教育部认证成绩单等！
二.真实使馆公证(即留学回国人员证明,不成功不收费)
三.真实教育部学历学位认证（教育部存档！教育部留服网站永久可查）
四.办理各国各大学文凭(一对一专业服务,可全程监控跟踪进度)
国外毕业证学位证成绩单办理流程：
1客户提供圣芭芭拉分校圣芭芭拉分校毕业证成绩单办理信息：姓名生日专业学位毕业时间等（如信息不确定可以咨询顾问：我们有专业老师帮你查询）；
2开始安排制作毕业证成绩单电子图；
3毕业证成绩单电子版做好以后发送给您确认；
4毕业证成绩单电子版您确认信息无误之后安排制作成品；
5成品做好拍照或者视频给您确认；
6快递给客户（国内顺丰国外DHLUPS等快读邮寄）。
专业服务请勿犹豫联系我！本公司是留学创业和海归创业者们的桥梁。一次办理终生受用一步到位高效服务。详情请在线咨询办理,欢迎有诚意办理的客户咨询!洽谈。
招聘代理：本公司诚聘英国加拿大澳洲新西兰美国法国德国新加坡各地代理人员如果你有业余时间有兴趣就请联系我们咨询顾问：+微信:95270640田里逡巡一番抱起一只硕大的西瓜用石刀劈开抑或用拳头砸开每人抱起一大块就啃啃得满嘴满脸猴屁股般的红艳大家一个劲地指着对方吃吃地笑瓜裂得古怪奇形怪状却丝毫不影响瓜味甜丝丝的满嘴生津遍地都是瓜横七竖八的活像掷满了一地的大石块摘走二三只爷爷是断然发现不了的即便发现爷爷也不恼反而教山娃辨认孰熟孰嫩孰甜孰淡名义上是护瓜往往在瓜棚里坐上一刻饱吃一顿后山娃就领着阿黑漫山遍野地跑阿黑是一条黑色的大猎狗挺机灵的是山室
falcon-invoice-discounting-a-premier-investment-platform-for-superior-returns...
falcon-invoice-discounting-a-premier-investment-platform-for-superior-returns...Falcon Invoice Discounting
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.Solution Manual For Financial Accounting, 8th Canadian Edition 2024, by Libby...
Solution Manual For Financial Accounting, 8th Canadian Edition 2024, by Libby, Hodge, Verified Chapters 1 - 13, Complete Newest Version Solution Manual For Financial Accounting, 8th Canadian Edition by Libby, Hodge, Verified Chapters 1 - 13, Complete Newest Version Solution Manual For Financial Accounting 8th Canadian Edition Pdf Chapters Download Stuvia Solution Manual For Financial Accounting 8th Canadian Edition Ebook Download Stuvia Solution Manual For Financial Accounting 8th Canadian Edition Pdf Solution Manual For Financial Accounting 8th Canadian Edition Pdf Download Stuvia Financial Accounting 8th Canadian Edition Pdf Chapters Download Stuvia Financial Accounting 8th Canadian Edition Ebook Download Stuvia Financial Accounting 8th Canadian Edition Pdf Financial Accounting 8th Canadian Edition Pdf Download Stuvia
Independent Study - College of Wooster Research (2023-2024)
"Does Foreign Direct Investment Negatively Affect Preservation of Culture in the Global South? Case Studies in Thailand and Cambodia."
Do elements of globalization, such as Foreign Direct Investment (FDI), negatively affect the ability of countries in the Global South to preserve their culture? This research aims to answer this question by employing a cross-sectional comparative case study analysis utilizing methods of difference. Thailand and Cambodia are compared as they are in the same region and have a similar culture. The metric of difference between Thailand and Cambodia is their ability to preserve their culture. This ability is operationalized by their respective attitudes towards FDI; Thailand imposes stringent regulations and limitations on FDI while Cambodia does not hesitate to accept most FDI and imposes fewer limitations. The evidence from this study suggests that FDI from globally influential countries with high gross domestic products (GDPs) (e.g. China, U.S.) challenges the ability of countries with lower GDPs (e.g. Cambodia) to protect their culture. Furthermore, the ability, or lack thereof, of the receiving countries to protect their culture is amplified by the existence and implementation of restrictive FDI policies imposed by their governments.
My study abroad in Bali, Indonesia, inspired this research topic as I noticed how globalization is changing the culture of its people. I learned their language and way of life which helped me understand the beauty and importance of cultural preservation. I believe we could all benefit from learning new perspectives as they could help us ideate solutions to contemporary issues and empathize with others.
What's a worker’s market? Job quality and labour market tightness
What's a worker’s market? Job quality and labour market tightnessLabour Market Information Council | Conseil de l’information sur le marché du travail
In a tight labour market, job-seekers gain bargaining power and leverage it into greater job quality—at least, that’s the conventional wisdom.
Michael, LMIC Economist, presented findings that reveal a weakened relationship between labour market tightness and job quality indicators following the pandemic. Labour market tightness coincided with growth in real wages for only a portion of workers: those in low-wage jobs requiring little education. Several factors—including labour market composition, worker and employer behaviour, and labour market practices—have contributed to the absence of worker benefits. These will be investigated further in future work.Tdasx: Unveiling the Trillion-Dollar Potential of Bitcoin DeFi
Tdasx: Unveiling the Trillion-Dollar Potential of Bitcoin DeFi
Recently uploaded (20)
Bridging the gap: Online job postings, survey data and the assessment of job ...
Bridging the gap: Online job postings, survey data and the assessment of job ...
Who Is the Largest Producer of Soybean in India Now.pdf
Who Is the Largest Producer of Soybean in India Now.pdf
Applying the Global Internal Audit Standards_AIS.pdf
Applying the Global Internal Audit Standards_AIS.pdf
OAT_RI_Ep20 WeighingTheRisks_May24_Trade Wars.pptx
OAT_RI_Ep20 WeighingTheRisks_May24_Trade Wars.pptx
Pensions and housing - Pensions PlayPen - 4 June 2024 v3 (1).pdf
Pensions and housing - Pensions PlayPen - 4 June 2024 v3 (1).pdf
BONKMILLON Unleashes Its Bonkers Potential on Solana.pdf
BONKMILLON Unleashes Its Bonkers Potential on Solana.pdf
Economic Risk Factor Update: June 2024 [SlideShare]
Economic Risk Factor Update: June 2024 [SlideShare]
Seminar: Gender Board Diversity through Ownership Networks
Seminar: Gender Board Diversity through Ownership Networks
falcon-invoice-discounting-a-premier-investment-platform-for-superior-returns...
falcon-invoice-discounting-a-premier-investment-platform-for-superior-returns...
Solution Manual For Financial Accounting, 8th Canadian Edition 2024, by Libby...
Solution Manual For Financial Accounting, 8th Canadian Edition 2024, by Libby...
Independent Study - College of Wooster Research (2023-2024)
Independent Study - College of Wooster Research (2023-2024)
What's a worker’s market? Job quality and labour market tightness
What's a worker’s market? Job quality and labour market tightness
Tdasx: Unveiling the Trillion-Dollar Potential of Bitcoin DeFi
Tdasx: Unveiling the Trillion-Dollar Potential of Bitcoin DeFi
Principle of comparative advantage
- 1. PRINCIPLEOFCOMPARITIVEADVANTAGE Prepared By: Bindu, H A M.Sc. (Agri.) 1
- 2. ABSOLUTEADVANTAGE This theory was putforth by Adam Smith. Absolute advantage refers to the ability of a country to produce a greater quantity of a good or service than the other country using the same amount of resources. 2
- 3. COUNTRY COTTON WHEAT A 10 25 B 15 10 COUNTRY COTTON WHEAT C 100 120 D 90 80 3
- 4. COMPARATIVEADVANTAGE This theory was developed by David Ricardo in 1817 to explain why countries engage in international trade even when one country is more efficient in producing every single good than other country. Comparative advantage is an economic law referring to the ability of any given economy to produce goods and services at a lower opportunity cost than other. 4
- 5. ASSUMPTIONS • There are two countries producing two goods. • Labour is the only cost of production. • Labour is homogeneous. • Factors of production are perfectly mobile within a country and immobile between the countries. • Perfect competition as well as no intervention of the Government in economic activities. • Existence of full employment. • No transportation costs. 5
- 6. COMPARATIVEADVANTAGE COUNTRY WHEAT 1 Unit CLOTH 1 Unit INTERNAL TERMS OF TRADE A 80hrs 90hrs 80/90 1W = 0.89C or 1C = 1.13W B 120hrs 100hrs 120/100 1C = 0.83W 1W = 1.2C 6
- 7. GAINSFROM TRADE Without specialization: With specialization: Country Wheat Cloth A 1 unit 1 unit B 1 unit 1 unit 2 units 2 units Country Wheat Cloth A 1 unit 0.89 unit B 0.83 unit 1 unit 1.83 unit 1.89unit SURPLUS = 0.11 unit of Cloth and O.17 unit of Wheat 7
- 8. LIMITATIONS Restrictive model. Full employment. Demand is ignored. Mobility of factors of production. No free trade. Complete specialization. No transportation costs. 8
- 9. 9