Can you have absolute advantage in both goods?
A comparative advantage exists when a country can produce goods at lower opportunity cost compared to other countries. It is not possible for a country to have a comparative advantage in all goods. However, a country can have an absolute advantage in all goods.
What is meant by absolute advantage?
Absolute advantage, economic concept that is used to refer to a party’s superior production capability. Specifically, it refers to the ability to produce a certain good or service at lower cost (i.e., more efficiently) than another party.
What is an absolute advantage and provide an example?
Absolute advantage refers to the ability of a country to produce a good more efficiently than other countries. For example, the Canadian economy, which is rich in low cost land, has an absolute advantage in agricultural production relative to some other countries.
What is the most basic problem of economics?
The fundamental economic problem is the issue of scarcity and how best to produce and distribute these scare resources. Scarcity means there is a finite supply of goods and raw materials. Finite resources mean they are limited and can run out.
What is the importance of studying economics?
Considered a social science, economics uses scientific methods to understand how scarce resources are exchanged within society. Economists study theories and techniques useful for developing policies in government as they have a deep understanding of how to create efficiency in today’s world.
What is the rule for using opportunity cost to make decisions?
The opportunity cost is the value of the next best alternative foregone. Every decision necessarily means giving up other options, which all have a value. The opportunity cost is the value one could have derived from using the same resources another way, though this is not always easily quantifiable.
Why opportunity cost is the best forgone alternative?
It is not simply the amount spent on that choice. The concepts of scarcity, choice, and opportunity cost are at the heart of economics. A good is scarce if the choice of one alternative requires that another be given up. The opportunity cost of any choice is the value of the best alternative forgone in making it.