Comparative advantage

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Comparative advantage by Mind Map: Comparative advantage

1. A country has a comparative advantage if it can produce goods at a lower opportunity cost than another country

1.1. Opportunity cost is the unit of one good we have to sacrifice in order to increase productive of another good

1.2. Example

1.2.1. oil-producing nations have a comparative advantage in chemicals

1.2.1.1. Their locally-produced oil provides a cheap source of material for the chemicals when compared to countries without it.

2. Different absolute advantage and comparative

2.1. Absolute advantage

2.1.1. The producer that requires a smaller quantity inputs to produce a good is said to have an absolute advantage in producing that good

2.2. Comparative advantage

2.2.1. Comparative advantage refers to the ability of a party to produce a particular good or service at a lower opportunity cost than another.

3. proposed by David Ricardo

3.1. this theory shows how countries can gain from trading with each other even one of them is more efficient.

3.2. ability of a country to produce a particular product at lower opportunity cost than another country

3.3. suggests that countries should specialize in the goods they can produce most efficiently, rather than trying for self-sufficiency.

4. Comparative advantage is an economic term that refers to an economy's ability to produce goods and services at a lower opportunity cost than that of trade partners.

5. A comparative advantage gives a company the ability to sell goods and services at a lower price than its competitors and realize stronger sales margins.