econ101
ECON101
Student name: Xing CHENG BIN
UOW Number: 4618968
Assignment 7
Law of Absolute and Comparative Advantage
Absolute advantage means that an economy can produce a good for lower costs than another. It means that less resources are needed to produce the same amount of goods, and enter into exchange in the international market place and so makes gains.
Comparative advantage means when one country can produce a good or service at a lower opportunity cost than another. This means a country can produce a good relatively cheaper than other countries.
They must occur under the following condition
Only two countries and two products. The cost of the product to be constant
Must be free trade between the two countries.
The same labor price between the two countries .
Must not involve changes in transportation costs and technology.
Distinguish between absolute advantage and comparative advantage
Comparative advantage is the ability of a particular country to produce a certain product better than another country. so a country will have an absolute advantage over another country when it produces the highest amount of goods after the same resources are supplied to both of them.
absolute advantage is a condition where the trade is not mutually beneficial, comparative advantage is a condition in which the trade is mutually beneficial.
cost is a factor involved in absolute advantage, opportunity cost is the factor that is involved in comparative advantage.
Unlike absolute advantage, unlike the absolute advantage, comparative advantage is always mutually beneficial.
Give a “two-good” situation ， calculate which country will trade which good and indicate the gains from free trade.
Student name: Xing CHENG BIN
UOW Number: 4618968
Assignment 7
Law of Absolute and Comparative Advantage
Absolute advantage means that an economy can produce a good for lower costs than another. It means that less resources are needed to produce the same amount of goods, and enter into exchange in the international market place and so makes gains.
Comparative advantage means when one country can produce a good or service at a lower opportunity cost than another. This means a country can produce a good relatively cheaper than other countries.
They must occur under the following condition
Only two countries and two products. The cost of the product to be constant
Must be free trade between the two countries.
The same labor price between the two countries .
Must not involve changes in transportation costs and technology.
Distinguish between absolute advantage and comparative advantage
Comparative advantage is the ability of a particular country to produce a certain product better than another country. so a country will have an absolute advantage over another country when it produces the highest amount of goods after the same resources are supplied to both of them.
absolute advantage is a condition where the trade is not mutually beneficial, comparative advantage is a condition in which the trade is mutually beneficial.
cost is a factor involved in absolute advantage, opportunity cost is the factor that is involved in comparative advantage.
Unlike absolute advantage, unlike the absolute advantage, comparative advantage is always mutually beneficial.
Give a “two-good” situation ， calculate which country will trade which good and indicate the gains from free trade.