"Two countries can achieve gains from trade even if one of the countries has an absolute advantage in the production of all goods." Explain. (includes detailed example)

In the world market, countries trade harvestings they wouldnt be able to let on on their own. Countries like Cuba defines in cigar output, Japan in electronics, and Russia in move up technology. However, even if a province has an implicit advantage in producing all goods, they still will make headway from trade. Many frugal factors are involved with trade. Among the major factors are probability prices, comparative advantage, specialization and finally trade. Opportunity follow is defined as the look upon of the best alternative forgone when an pointedness or activity is chosen. In other words, opportunity hail is the monetary value of choice. For font: the opportunity cost of producing a gondola is the time that couldve been used to produce something else, say paper. For a country (country A) that has an absolute advantage ( the skill to produce something using fewer resources than other producers use ) in producing both cars and paper, the opportunity cost o f producing say, 1 car is the production of 3 lashings of paper. Thus, what product a country chooses to limit on must be chosen so as to produce as much(prenominal) as possible composition suffering as picayune opportunity cost as possible.

Which goods the country should specialize on should be monitored by the faithfulness of comparative advantage, which states that: the country with the last(a) opportunity cost of producing a particular good should specialize in producing that good. By specializing on a certain good, a country lowers the opportunity cost of that good by waive production of other goods. For example: Say country A has an absolute advantage in ! producing cars as well as paper, and the opportunity cost of producing 1 car is 3 stacks of paper. Country B however, produces 1 car at an opportunity cost of 6 tons of paper. If these two... If you want to get a full essay, order it on our website: OrderCustomPaper.com

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