"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 crossways they wouldnt be able to precede on their own. Countries like Cuba defines in cigar output, Japan in electronics, and Russia in move up technology. However, even if a countrified has an living advantage in producing all goods, they still will make headway from trade. Many frugal factors atomic number 18 involved with trade. Among the major factors are prospect prices, comparative advantage, specialization and finally trade. Opportunity represent is defined as the look upon of the best alternative forgone when an full point or activity is chosen. In other words, opportunity follow is the apostrophize of choice. For font: the opportunity cost of producing a auto 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 fewer resources than other producers use ) in producing both cars and paper, the opportun ity cost of producing say, 1 car is the production of 3 lashings of paper. Thus, what product a country chooses to condition on must be chosen so as to produce as a lot as possible composition suffering as dwarfish 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 terminal 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 waive production of other goods. For example: Say country A has an absolute ! advantage in producing cars as well as paper, and the opportunity cost of producing 1 car is 3 slews 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

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