Illustrate the Comparative advantage and terms of trade

Illustrate the Comparative advantage and terms of trade?

E

Expert

Verified

The principle of comparative advantage for two countries, U.S. and Mexico, with a simplified example is in Mexico, the opportunity cost of 1 ton of soybeans is giving up 4 tons of avocados.  In the U.S., the opportunity cost of 1 ton of soybeans is 3 tons of avocados.  In other words, the comparative cost of soybeans is less in U.S. than in Mexico when the alternative is producing avocados.  Thus the U.S. should specialize in soybeans, and Mexico should specialize in avocados. If the two nations specialize according to comparative advantage, then to get the other product they must trade.  A nation has a comparative advantage in some product when it can produce that product at a lower domestic opportunity cost than can a potential trading partner.

   Related Questions in Business Economics

  • Q : Real exchange rate Question: To

    Question: To determine the real exchange rate, what two pieces of information do you need in addition to the nominal exchange rate? Answer:

    Q : Explain the Trade pattern of U.S. and

    Explain the Trade pattern of U.S. and World Trade?

  • Q : Case of arbitrage while selling and

    Assume that melons sell for $5 in Brazil when moose pelts sell for $10, still into Canada melons sell for $10 as well as moose pelts sell for $5. A person who buys moose pelts within Canada to sell into Brazil would be doing: (1) speculation. (2) the “invisible

  • Q : What does financial leverage specify

    What does financial leverage specify? And also states its limitations?

  • Q : Determine the lowest average wages

    Consider a huge group of identically smart and strong industrious workers. All else identical, Adam Smith would predict such that the lowest average wages would be earned through the workers who were in the work that: (1) had the leas

  • Q : Technical change and vintage technology

    In heterodox economics, what implications does technical change and vintage technology contain for the cost structure of the business enterprise?

  • Q : Explain the volume and pattern of U.S.

    Explain the volume and pattern of U.S. and World Trade?

  • Q : Exploit consumers in highly competitive

    This is difficult for firms within highly competitive markets to exploit consumers since: (i) consumer advocates organize boycotts that generate bad publicity. (ii) market pressures force fair distributions of products. (iii) the government sets price

  • Q : Changing rates of Appreciation and

    Elucidate the changing rates of Appreciation and Depreciation?

  • Q : Symptoms of governmental interference-

    Adam Smith and the “typical liberal” economists who followed within his footsteps viewed persistent monopolization and market power as: (1) ineffective and best regulated through government. (2) crucial in finding the rate of technological

©TutorsGlobe All rights reserved 2022-2023.