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Chapter 2: 10 (page 43)

What is comparative advantage?

Short Answer

Expert verified

Essentially, "comparative advantage" is the ability of a country to produce a product at a lower cost than other countries, or to have a lower opportunity cost of production.

Step by step solution

01

Step 1:

In the case where a country has two different goods, x and y, and the opportunity cost for producing good x is lower than that of producing good y, then the country exports good x and imports good y from abroad. In international trade, Ricardo developed his theory of comparative advantage.

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Most popular questions from this chapter

It is clear that productive inefficiency is a waste since resources are used in a way that produces less goods and services than a nation is capable of. Why is allocative inefficiency also wasteful?

What are four responses to the claim that people should not behave in the way described in this chapter?

Is the economic model of decision-making intended as a literal description of how individuals, firms, and the governments actually make decisions?

Suppose Alphonso鈥檚 town raises the price of bus tickets from \(0.50to \)1and the price of burgers rises from \(2 to\)4. Why is the opportunity cost of bus tickets unchanged? Suppose Alphonso鈥檚 weekly spending money increases from \(10to\)20. How is his budget constraint affected from all three changes? Explain.

Explain why individuals make choices that are directly on the budget constraint, rather than inside the budget constraint or outside it.
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