Premium Essay

Absolute Advantage

In:

Submitted By Chian
Words 482
Pages 2
Absolute Advantage Absolute advantage is a situation where a country can produce a product more efficient than any country in producing it. It also refer to ability to produce a particular good at a lower absolute cost than another. That’s mean a country that have an absolute advantage is a country that can produce a product that are due to some combination. The determinant of absolute advantage for a country is such as favorable climate, good soils,and accumulated expertise. For example, Bangladesh has an absolute advantage in textile industries. The most important factor is Bangladesh has a very low labor costs in their country and Bangladesh also has a vibrant network of supporting industries that supply inputs to its garment manufacturers.
According to Adam Smith, the country should specialize in the production of goods that have an absolute advantage. Then the country can trade their product to the other countries. For example, France can produce 2 unit wine in a hour, meanwhile Japan only can produce 1 unit wine in a hour, but Japan can produce 5 unit clock radios in one hour, meanwhile France only can produce 3 unit clock radios in one hour. That means France have an absolute advantage in production of wine compare with Japan. So, France should specialize in production of wine and buy clock radios from Japan. Japan should specialize in production of clock radios and buy wine from france.
Comparative advantage
From economic perception, comparative advantage is refer to the ability to produce a good or service at a lower opportunity cost than another party. According to Ricardo, theory comparative encourage a country to specialize on the product that can produce in the most efficient ways. For example, Northland and Southland have produce food and clothes. If Northland and Southland have allocated 100 unit of resources to produce food, the output that

Similar Documents

Premium Essay

Absolute and Comparative Advantage

...iess_Batch4_A-L 5/11/07 11:14 AM Page 1 A–L ABSOLUTE AND COMPARATIVE ADVANTAGE During the seventeenth and eighteenth centuries the dominant economic philosophy was mercantilism, which advocated severe restrictions on import and aggressive efforts to increase export. The resulting export surplus was supposed to enrich the nation through the inflow of precious metals. Adam Smith (1776), who is regarded as the father of modern economics, countered mercantilist ideas by developing the concept of absolute advantage. He argued that it was impossible for all nations to become rich simultaneously by following mercantilist prescriptions because the export of one nation is another nation’s import. However, all nations would gain simultaneously if they practiced free trade and specialized in accordance with their absolute advantage. Table I, illustrating Smith’s concept of absolute advantage, shows quantities of wheat and cloth produced by one hour’s work in two countries, the United States and the United Kingdom. Division of labor and specialization occupy a central place in Smith’s writing. Table I indicates what the international division of labor should be, as the United States has an absolute advantage in wheat and the U.K. has an absolute advantage in cloth. Smith’s absolute advantage is determined by a simple comparison of labor productivities across countries. Smith’s theory of absolute advantage predicts that the United States will produce only wheat (W) and the U...

Words: 1524 - Pages: 7

Premium Essay

David Ricardo & the Comarative and Absolute Advantage

...ECO2023 DAVID RICARDO & THE COMARATIVE AND ABSOLUTE ADVANTAGE   David Ricardo was one of those rare people who achieved both tremendous success and lasting fame. After his family disinherited him for marrying outside his Jewish faith, Ricardo made a fortune as a stockbroker and loan broker. When he died, his estate was worth more than $100 million in today’s dollars. At age twenty-seven, after reading Adam Smith’s The Wealth of Nations, Ricardo got excited about economics. He wrote his first economics article at age thirty-seven and then spent the following fourteen years—his last ones—as a professional economist. Ricardo first gained notice among economists over the “bullion controversy.” In 1809 he wrote that England’s inflation was the result of the Bank of England’s propensity to issue excess banknotes. In short, Ricardo was an early believer in the quantity theory of money, or what is known today as monetarism. In his Essay on the Influence of a Low Price of Corn on the Profits of Stock (1815), Ricardo articulated what came to be known as the law of diminishing marginal returns. One of the most famous laws of economics, it holds that as more and more resources are combined in production with a fixed resource—for example, as more labor and machinery are used on a fixed amount of land—the additions to output will diminish. Ricardo also opposed the protectionist Corn Laws, which restricted imports of wheat. In arguing for free trade, Ricardo formulated the idea of...

Words: 1159 - Pages: 5

Premium Essay

Comparative and Absolute Advantage

...Comparative and Absolute Advantage ECO 561 Alfred Igbodipe 7/24/16 Introduction Due to the differences between the countries in its profitable fundamentals; the International Trade occurs. The contracts between the countries consider as the primary driver of the global exchange. These contracts concluded on the basis of the countries beneficial elements and advantages. Each international trade between the countries depends on numerous focal points of this exchange process. The economics and producers effectiveness measured by absolute advantage for these economics/producers. For example; if the producer needs lesser amount of contributions/inputs to provide specific product, then this producer has an absolute advantage in producing process. Comparative advantage discusses the economy/producer ability to produce a specific product with a minimum opportunity cost comparing to another producer. "There is a possibility of each nation to have an absolute advantage in producing and delivering the products; however; the different nations could in any case have distinctive comparative advantages". The international trade theory based on two dynamic concepts; "Absolute and comparative advantage". The main difference between these concepts is that the absolute advantage measure nation ability to produce more profits per unit of beneficial input than another. However; the comparative advantage measure the ability that one nation has an absolute advantage in each kind of produce. ...

Words: 4210 - Pages: 17

Premium Essay

Comparative Advantage vs. Absolute Advantage

...Explain comparative advantage, absolute advantage and explain what that has to do with today’s economy. A country has an absolute advantage in the production of a good relative to another country if it can produce the good at lower cost or with higher productivity. Absolute advantage compares industry productivities across countries. In the case of Zambia, for instance, the country has an absolute advantage over many countries in the production of copper. This occurs because of the existence of reserves of copper ore or bauxite. We can see that in terms of the production of goods, there are obvious gains from specialization and trade, if Zambia produces copper and exports it to those countries that specialize in the production of other goods or services. It is easy to see that if countries have an absolute advantage there are advantages to trade. However, what happens if one country has an absolute advantage over its trading partners in the production of a number of goods. Specialization and trade can still result in there being welfare gains made from trade. A country has a comparative advantage in the production of a good or service that it produces at a lower opportunity cost than its trading partners. The opportunity cost of a good is the quantity of other goods sacrificed to make another unit of that good. Some countries have an absolute advantage in the production of many goods relative to their trading partners. Some have an absolute disadvantage. They...

Words: 595 - Pages: 3

Premium Essay

Comparative and Absolute Advantage

...Journal of Information, Control and Management Systems, Vol. 5, (2007), No. 2 331 RISK AND DECISION MAKING PROCESS Katarína RIPLOVÁ University of Žilina, Faculty of Management Science and Informatics, Slovak Republic e-mail: Katarina.Riplova@fri.uniza.sk Abstract The paper deals with problem risk and decsion making process, risk management, risk in decision making process and risk control. Current business environment is defined by quite big amount instability and possibilities of unforeseenable changes. Base upon environment characteristics above, the structure of decision making is decision making under condition of safety, risk and uncertainty. Risk management represents the process of risk identification, estimation of its potential impact and finding the most effective methods of control or reacting to those risks. Keywords: risk, decision making process, manager, decision risk management 1 INTRODUCTION The risk of a right decision is an inseparable part of manager decisions, primarily of strategic management planning of vital projects and business plans. There are always two aspects on a business, positive and negative. The positive risk feature relates to the hope for success, negative one manifests itself in worse results than expacted, or even in a loss. The increase of business success probability in demanding market environment requires active and systematic work with risk. This is the principal role of risk management. The decision making...

Words: 1516 - Pages: 7

Premium Essay

Finance

...Comparative Advantage and Absolute Advantage ______________________________________________________________________________________________ absolute advantage: A country, individual, or firm has an absolute advantage in producing a good if production of the good absorbs fewer resources (or less time, in the case of an individual) than are required in other countries or by other individuals or firms. comparative advantage: A comparative advantage in producing or selling a good is possessed by an individual or country if they experience the lowest opportunity cost in producing the good. ______________________________________________________________________________________________ Comparative Advantage The division of labor facilitates production of a given good, but how do individuals or groups determine which specific goods or services to produce? The maximum potential gains from trade tend to be realized if you specialize in that activity which you can do at the lowest cost relative to other people’s costs. In 1817, David Ricardo, an influential early economist, focused on international trade when he generalized this idea into an economic law. The law of comparative advantage: Mutually beneficial exchange is possible whenever relative production costs differ prior to trade. This law applies to all exchanges, whether between individuals or nations. Opportunity cost is the key to comparative advantage: Individuals and nations gain by producing goods...

Words: 976 - Pages: 4

Free Essay

Nucor Case

...MEMORANDUM FROM: X SUBJ: “Nucor in 2013” Case Analysis EXECUTIVE SUMMARY The success of Nucor results in correct strategy that managers selected. Nucor Corporation is the largest steel manufacturer in the United States. The steel industry is a fragmented industry. There are many marginal competitors existing in the steel industry. Competitions are high. Nucor is in mature stage of the business life cycle. In this stage, Nucor needs to gain more market share. I strongly recommend Nucor develop product diversity, and spread great company culture to earn sustainable profit growth. ANALYSIS The steel industry in U.S. is not a great industry to begin business for a company due to the economic environment. A bunch of steel companies are facing bankruptcy. However, Nucor breaks the barrier and has strong development in this environment. Industry Analysis. The U.S. steel industry is facing recovery from global recession period, and is in the worst economic period dating back to early 1980s. Also, a number of steel companies have faced bankruptcy, reorganization, or no longer operating. Moreover, because of overcapacity, the steel industry has become a burden that U.S. is willing to get rid of. That is to say, trying to break the siege of the status quo in the steel industry is a challenge to Nucor. Porter’s Five Forces Model. Porter’s five forces model can help identify the current state of Nucor in the steel industry. First of all, new entry to this industry...

Words: 829 - Pages: 4

Premium Essay

Gbm 381 Week 1 Quiz

...GBM 381 Week 1 Quiz To Buy This material Click below link http://www.uoptutors.com/GBM-381/GBM-381-Week-1-Quiz 1.  _____________ explains how mutually beneficial trade can take place even when one nation is less efficient than another nation in the production of all commodities. 1. Mercantilism 2. The law of comparative advantage 3. The labor theory of value 4. The law of absolute advantage  2.  The ability of one nation to produce a commodity using fewer resources than another nation is: 1. absolute advantage 2. comparative advantage 3. mercantilism 4. specialization     3.  According to the following table, the US can gain from trade with the UK by getting how much cloth for 9 bushels of wheat?   | U.S. | U.K. | Wheat (bushels/hr) | 9 | 3 | Cloth (yards/hr) | 5 | 4 |   1. Only less than 12 yards of cloth 2. Only greater than 9 yards of cloth 3. Anything less than 5 yards of cloth 4. Anything greater than 5 yards of cloth   4. In a two-nation world, if Nation A’s export prices increase relative to their import prices, which of the following will occur? 1. Terms of trade improve for both nations 2. Terms of trade worsen for Nation A and improve for their trade partner 3. Terms of trade improve for Nation A and worsen for their trade partner 4. Terms of trade worsen for both nations    5.  Which of the following would least likely apply to the product cycle theory? 1. Digital cameras 2....

Words: 341 - Pages: 2

Premium Essay

Marketing

... | |Status |Completed | |Score |19 out of 22 points   | |Time Elapsed |20 minutes out of 5 hours. | |Instructions | | • Question 1 1 out of 1 points | | | |[pic] |Refer to Figure 3-2. Ben has a comparative advantage in | | | | | | | | | | | |Figure 3-2 | | | | | |...

Words: 1767 - Pages: 8

Free Essay

Case Analysis

...French sports enthusiasts in 1950, as the customer demand and business opportunities increased, it transformed from an association into a travel company with the help of the managing director Gilbert Trigano. Club Med created the all-inclusive vacation concept and later became the market leader in the resort industry. Throughout the years, the corporation had enjoyed financial growth and geographically expanded its business throughout the world. In 1984 and 1985, both Club Med S.A and its subsidiary, Club Med. Inc. went public and offered their shares on major stock exchange. However, the company should pay close attention to its potential weakness given the pace of commerce and heated competition. This report will list the comparative advantages of Club Med and explain the reasons for its success over the past years. It will also highlight the company’s unique corporate culture. Moreover, the report will point out Club Med’s potential problems, and provide recommendation in regards to Club Med’s future strategy. ANALYSIS Club Med’s success can be measured both financially and non-financially. After transforming into a travel and hotel company, Club Med further expanded its business by forming the U.S. subsidiary, Club Med. Inc. in 1972. The corporation gradually strengthened its global presence by operating large number of resorts worldwide throughout the years. By 1985, Club Med had “108 resort villages throughout the world and hosted 820,000 vacationers annually.” The...

Words: 1598 - Pages: 7

Premium Essay

The End of at&T's Absolute Advantage in Iphone Sales

...The End of AT&T’s Absolute Advantage in iPhone Sales The iPhone is the most sought-after smartphone on the market today. Since 2007, the iPhone is currently available only through AT&T. For years, there have been rumors that other wireless providers, such as Sprint, T-Mobile or Verizon Wireless would get the iPhone. In October, the Wall Street Journal reported that Apple is in the process of producing an iPhone that will be available to Verizon Wireless customers beginning in 2011. With large numbers of customers wanting an iPhone but choosing not to sign with AT&T, competition from other smartphones manufacturers, such as the BlackBerry and Droid, and Apple’s search for new areas of growth, an end to AT&T’s absolute advantage in iPhone sales appears to be on the horizon. For years, AT&T has had an absolute advantage over Verizon Wireless, Sprint and T-Mobile with the iPhone, thanks to an exclusive contract with Apple, who is expected to sell 40 million iPhones worldwide this year. This absolute advantage has led to AT&T’s growth in recent years, making them one of the largest mobile network providers in the United States, second to Verizon Wireless. This growth, however, has slowed in recent years, as most AT&T customers who wanted the iPhone has bought them. People who have wanted an iPhone, but did not want to sign with AT&T, have purchased their iPhones thru AT&T without a contract, or through secondary markets such as eBay, and...

Words: 618 - Pages: 3

Premium Essay

Robin Li: a Gentleman Leader

...Robin Li: A Gentleman Leader Fan Yang 2215384 There is no doubt that Baidu is the biggest Chinese search engin in the world. Compared with 1999, when Baidu had just been found, it was a only small company with 7 seven people, nowdays, Baidu occupied nearly 80 percents of the market share of search engin in China. Most people would like to own the success of Baidu to the initiator, Robin Li. Before Robin Li founded Baidu, he was just a network engineer, but now, he has already become an excellent leader. As a leader, Robin has many good qualities. He is knowlegable, cautious, patient, full of passion and keeping appropriate development speed of Baidu. There is nearly no rapid change or ups and downs in the development of Baidu. The development is stable and sustained. What gives others biggest impression in Robin Li's leadership is his gentleman-style leardership.In ancient China, " gentleman " is used to discribe somebody's moral perspective. The "gentleman-style leadership " refered here means that the Robin Li's leadership is base on the fact that human's nature is good, and he is trying to develop the company and create value for society consciously and actively in a gentleman's demeanor, which makes the atmosphere in Baidu free, harmonious and actively. Robin Li has tried his best to prevent being so serious in the company. For example, if Robin Li was in office, his door is generally open, unless there is an important conversation. This is to let the staff know...

Words: 1253 - Pages: 6

Premium Essay

My Christian Worldviews

...Carla Jensen CWV November 13, 2011 Todd Forrest My Very Own Worldview The three components that make up my worldview are God, Knowledge, and Ultimate Reality, because they shape shaped my thoughts, experiences, education, and life decisions. Therefore, my belief in God has shaped my entire life through my thoughts, experiences, and life decisions. My Thoughts: My thoughts have always included God, for as long as I can remember. I can remember feeling the presence of God around me as a very, very small child, and He has always been there to support me with His love and guidance. I don’t think of myself as a religious person, but as a person who would like to live my life the way God wants us to. I have always been a “Pollyanna” type, because I always believed that there is good in everyone and everything. It is really not practical to believe that people will always think and behave the same as me, which is why I have spent many years learning about others – how they think, what they do, and why they do it- as a way to better understand the human race. I have learned that many self proclaimed Christians can be the most evil of people, because going to church and reading the bible does not make a person act like Jesus Christ. People should not have to act “as if”, but just be like Him. I am old enough to have seen some pretty hypocritical folks in my lifetime that would chastise others for not going to church...

Words: 2562 - Pages: 11

Premium Essay

Robbin Li

...Robin Li: A Gentleman Leader Fan Yang 2215384 There is no doubt that Baidu is the biggest Chinese search engin in the world. Compared with 1999, when Baidu had just been found, it was a only small company with 7 seven people, nowdays, Baidu occupied nearly 80 percents of the market share of search engin in China. Most people would like to own the success of Baidu to the initiator, Robin Li. Before Robin Li founded Baidu, he was just a network engineer, but now, he has already become an excellent leader. As a leader, Robin has many good qualities. He is knowlegable, cautious, patient, full of passion and keeping appropriate development speed of Baidu. There is nearly no rapid change or ups and downs in the development of Baidu. The development is stable and sustained. What gives others biggest impression in Robin Li's leadership is his gentleman-style leardership.In ancient China, " gentleman " is used to discribe somebody's moral perspective. The "gentleman-style leadership " refered here means that the Robin Li's leadership is base on the fact that human's nature is good, and he is trying to develop the company and create value for society consciously and actively in a gentleman's demeanor, which makes the atmosphere in Baidu free, harmonious and actively. Robin Li has tried his best to prevent being so serious in the company. For example, if Robin Li was in office, his door is generally open, unless there is an important conversation. This is to let the staff know...

Words: 1253 - Pages: 6

Free Essay

Absolute Truth

...Absolute Truth can be defined as "the real state of facts and reality”, an accepted statement or proposition. Some suggest that there is no true reality, only perceptions and opinions, while others argue that there must be some absolute basis. With this being said, we can say that there are two diametrically-opposed beliefs related to absolute truth: There are no absolutes that define reality. Everything is relative, and thus there is no actual reality. There is ultimately no authority for deciding if an action is positive or negative; right or wrong. There are absolutes that define what is real and what is not. Thus, actions can be deemed right or wrong based upon how they measure up against these absolute standards. I’m a firm catholic believer and the catholic perspective on absolute truth should be determined by the one who is the ultimate authority, or maker, of all things. So for any of those who believe in God the absolute truth is derived from properly understanding who God is and what His "will" is for His creation. Propositions, in logic, are statements that can be labeled as either true or false. All of the examples you just heard and saw are complete statements that you can say are either true or false. Propositions are the objects of attitudes and the primary carriers of truth and falsity. This stipulation rules out certain candidates for propositions, including thoughts which are not sharable, and concrete events or facts, which cannot be false. Reference:...

Words: 261 - Pages: 2