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By instead concentrating on the things you do the “most best” and exchanging or trading any excess of those things with someone else for the things that person does the “most best,” you can both be better off. 10. Comparative Advantage: The Driving Force of Specialization A. THE DRIVING FORCE OF SPECIALIZATION By Unknown. Absolute Advantage 1. a. 1/5 chair for Mike and 1/3 chair for Sandy. d.5 tables for Mike and 3 tables for Sandy. Another advantage of specialization is that it saves time because if one keeps doing the same thing over and over again then he or she finds the shortcut way to do the thing which in turn results in a lot of saving of time. 5 tables for Mike and 1/3 table for Sandy. [av_button label='Get Any Economics Assignment Solved for US$ 55' link='manually,http://economicskey.com/buy-now' link_target='' color='red' custom_bg='#444444' custom_font='#ffffff' size='large' position='center' icon_select='yes' icon='ue859' font='entypo-fontello'], Home Definition of absolute advantage: the ability to produce a good using fewer inputs than another producer does. c.it would be difficult for Korea to benefit from trade with another country if Korea is efficient in the production of both goods. 200 Word Minimum. A farmer has the ability to grow either corn or cotton or some combination of the two. b.1/5 table for Mike and 3 tables for Sandy. P. 54 b. It follows that Bob will have a comparative advantage in the production of mustard. : Ability to produce a good with a lower opportunity cost. Given this, we know that the opportunity cost of 1 table is. Exporting is a form of international trade which allows for specialization, but can be difficult depending on the transaction. Cindy's opportunity cost of producing 1 computer is 2 stereos, and Dana's opportunity cost of producing 1 computer is 1 stereo. NO PLAGIARISM. Comparative advantage is determined by which person or group of persons can produce a given quantity of a good using the fewest resources. Our Experts can answer your tough homework and study questions. The rancher has an absolute advantage in the production of both potatoes and meat. When countries decide what products to specialize in, the essential question becomes who could produce the product at a lower opportunity cost. a.the number of hours that one must work in order to buy one unit of the item. This increase in the size of the economic pie can be used to make everyone better off. In one month, Mike can make 4 tables or 20 chairs, where Sandy can make 6 tables or 18 chairs. Mike and Sandy are two woodworkers who both make tables and chairs. When countries decide what products to specialize in, the essential question becomes who could produce the product at a lower opportunity cost. 2. [30] ) Treasure Island: The Power of Trade. Absolute Advantage 1. Assume for Namibia that the opportunity cost of each hut is 200 bowls. Opportunity Cost and Comparative Advantage i. Rather than absolute advantage, comparative advantage is the driving force of specialization. If you do everything better than anyone else, should you be self-sufficient and do everything yourself? Rose’s explanation of the gains from trade, though correct, poses a puzzle: If Rose is better at both raising cattle and growing potatoes, how can Frank ever specialize in doing what he does best? always greater than the cost of producing the item. If the opportunity cost of one bushel of corn is 3/5 bushel of green beans, then the opportunity cost of 1 bushel of green beans is, 9. The fanner doesn’t seem to do anything best. the number of hours that one must work in order to buy one unit of the item. Given this, we know that the opportunity cost of 1 table is. In one month, Mike can make 4 tables or 20 chairs, where Sandy can make 6 tables or 18 chairs. This E-mail is already registered as a Premium Member with us. A farmer has the ability to grow either corn or cotton or some combination of the two. The driving force or determinants of a country’s comparative advantages include its natural resources, factors of production and the availability of technology (Bourdet, Gullstrand, & Olofsdotter, 2007). As a first step in developing this principle, consider the following question. d. absolute advantage is the driving force of specialization P. 54 i. Def: Opportunity cost is whatever must be given up to obtain some item. As a first step in developing this principle, consider the following question: In the our example, who can produce potatoes at lower cost the farmer or the rancher? All countries only have a certain amount of resources available, so they always face trade-offs between the different goods. Which of these pairs of points could be on the United States' production possibilities frontier? 2. Which of these pairs of points could be on Namibia's production possibilities frontier? Rather than absolute advantage, comparative advantage is the driving force of specialization. The theme is "making a difference" Suppose a gardener produces both green beans and corn in her garden. In our example, who can produce potatoes at lower cost the farmer or the rancher? Section 2. is the most important; because of specialization. Comparative Advantage: The Driving Force of Specialization a. (200 airplanes, 5,000 cars) and (150 airplanes, 4,000 cars), (200 airplanes, 10,000 cars) and (150 airplanes, 20,000 cars), (300 airplanes, 15,000 cars) and (200 airplanes, 25,000 cars), (300 airplanes, 25,000 cars) and (200 airplanes, 40,000 cars). a.1/5 chair for Mike and 1/3 chair for Sandy. A country has comparative advantage if it can produce a good for less cost than any other nation. As we know, these trade-offs are measured in opportunity costs. Briefly explain the concept of cafeteria-style or flexible compensation.... Jeff only shops for shoes at Men's Wearhouse. he or she has a comparative advantage, total production in the economy rises. 7. d.5 chairs for Mike and 3 chairs for Sandy. 2. The factors of production are capital, land, and labor. Assume for Namibia that the opportunity cost of each hut is 200 bowls. Kindly login to access the content at no cost. c.5 chairs for Mike and 1/3 chair for Sandy. (In practice, governments restrict international trade for a variety of reasons; under Ulysses S. Grant , the US postponed opening up to free trade until its industries were up to strength, following the example set earlier by Britain. We all have a good intuitive understanding of the power of trade. b.1/5 chair for Mike and 3 chairs for Sandy. 1/5 chair for Mike and 3 chairs for Sandy. 1/5 table for Mike and 1/3 table for Sandy. The rancher has an absolute advantage in the production of both potatoes and meat (20 min<60 min for meat, and 10 min<15min for potatoes). Korea should specialize in the product in which it has an absolute advantage. Comparative Advantage and Trade. Average: 8 Attempts: 1. (200 huts, 30,000 bowls) and (150 huts, 35,000 bowls), b. Assume for Namibia that the opportunity cost of each hut is 200 bowls. comparative advantage: the driving force of specialization; conclusion; a parable for the modern economy; interdependence and the gains from trade; the phillips’ cline; problems of classification and definition; should the united states trade with other countries; comparative advantage and trade Test bank Questions and Answers of Chapter 3: 2:sec 32 Mc Comparative Advantage the Driving Force of Specialization 1. ... To solve this puzzle, we need to look at the principle of comparative advantage. Absolute Advantage 1. The rancher has an absolute advantage in the production of both potatoes and meat (20 min<60 min for meat, and 10 min<15min for potatoes). Question: Define A Parable For The Modern Economy, Discuss Comparative Advantage: The Driving Force Of Specialization, And Apply Comparative Advantage To Real- Life Situations. P. 54 b. Question Comparative Advantage: The Driving Force of Specialization. Absolute advantage is the comparison among producers of a good according to their productivity. Rather than absolute advantage, comparative advantage is the driving force of specialization. Home » Interdependence and the Gains from Trade » COMPARATIVE ADVANTAGE: THE DRIVING FORCE OF SPECIALIZATION, COMPARATIVE ADVANTAGE: THE DRIVING FORCE OF SPECIALIZATION. Comparative Advantage: The Driving Force of Specialization Comparative Adv. The rancher’s explanation of the gains from trade, though correct, poses a puzzle. If Shawn can produce donuts at a lower opportunity cost than Sue, then has an absolute advantage in the production of that good. Definition of absolute advantage: the comparison among producers of a good according to their productivity. 2. Assume for the, Comparative Advantage: The Driving Force of Specialization Comparative Advantage: The Driving Force of Specialization A. When countries decide what products to specialize in, the essential question becomes who could produce the product at a lower opportunity cost. The concept of comparative advantage suggests that as long as two countries (or individuals) have different opportunity costs for producing similar goods, they can profit from specialization and trade. Which of these pairs of points could be on the United States' production possibilities frontier? producing the good for which. it would be impossible for Korea to have an absolute advantage over another country in both products. Farmer 4 oz Potatoes ¼ oz Meat. a. trade allows for specialization b. trade has potential to benefit all nation c. trade allows nations to consume outside of their production possibilities curves. Specialization and comparative advantage are separate but related concepts. P. 54 i. Def: Opportunity cost is whatever must be given up to obtain some item. b. 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