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. 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. a.the number of hours that one must work in order to buy one unit of the item. Comparative Advantage: The Driving Force of Specialization 1. In sum, the producer that has a smaller opportunity cost will have the comparative advantage. Comparative Advantage: The Driving Force of Specialization Absolute advantage is the comparison among producers of a good according to their productivity Opportunity Cost is whatever must be given up to obtain some item Opportunity Cost and Comparative Advantage Economists use the term compatative advantage when describing the opportunity cost of two producers with the producer who … d.5 chairs for Mike and 3 chairs for Sandy. Question Absolute advantage is the driving force of specialization. producing the good for which. It follows that Bob will have a comparative advantage in the production of mustard. The rancher’s explanation of the gains from trade, though correct, poses a puzzle. A farmer has the ability to grow either corn or cotton or some combination of the two. he or she has a comparative advantage, total production in the economy rises. COMPARATIVE ADVANTAGE: THE DRIVING FORCE OF SPECIALIZATION. Absolute advantage is the driving force of specialization. In one month, Mike can make 4 tables or 20 chairs, where Sandy can make 6 tables or 18 chairs. (200 huts, 30,000 bowls) and (150 huts, 35,000 bowls) b. Comparative Adv. Why? 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 P. 54 i. Def: Opportunity cost is whatever must be given up to obtain some item. is the most important; because of specialization. When countries decide what products to specialize in, the essential question becomes who could produce the product at a lower opportunity cost. b.it would be impossible for Korea to have an absolute advantage over another country in both products. Figure 3.2 ... To solve this puzzle, we need to look at the principle of comparative advantage. We all have a good intuitive understanding of the power of trade. Briefly explain the concept of cafeteria-style or flexible compensation.... Jeff only shops for shoes at Men's Wearhouse. An important aspect that is omitted if we only look at absolute advantages is the presence of opportunity costs. There are two possible answers, and in these two answers lie the solution to our puzzle and the key to understanding the gains from trade. The theory of comparative advantage is attributed to political economist David Ricardo, who wrote the book Principles of … A country has comparative advantage if it can produce a good for less cost than any other nation. Rather than absolute advantage, comparative advantage is the driving force of specialization. The traders decide on whether they should export or import goods depending on comparative advantages. In sum, the producer that has a smaller opportunity … Rather than absolute advantage, comparative advantage is the driving force of specialization. D. 16. 5 chairs for Mike and 3 chairs for Sandy. Upload Materials The gains from specialization and trade are based not on absolute advantage but on comparative advantage. Absolute advantage is the comparison among producers of a good according to their productivity. c.it would be difficult for Korea to benefit from trade with another country if Korea is efficient in the production of both goods. 5. This E-mail is already registered as a Premium Member with us. If they agree to trade 7 stereos for 4 computers, they are agreeing to 1.75 stereos per computer. Given no other information, it follows that the farmer’s opportunity cost of a bushel of corn multiplied by his opportunity cost of a bushel of cotton, If Korea is capable of producing either shoes or soccer balls or some combination of the two, then. b.1/5 chair for Mike and 3 chairs for Sandy. 1. Which of these pairs of points could be on Namibia's production possibilities frontier? Assume for Namibia that the opportunity cost of each hut is 200 bowls. 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, Mike and Sandy are two woodworkers who both make tables and chairs. Definition of absolute advantage: the ability to produce a good using fewer inputs than another producer does. Korea’s opportunity cost of shoes is the inverse of its opportunity cost of soccer balls. Comparative Advantage: The Driving Force of Specialization a. P. 54 b. always greater than the cost of producing the item. Comparative advantage has influenced the way economies work from the time that countries first started trading with each other many centuries ago. Mike and Sandy are two woodworkers who both make tables and chairs. Cindy's opportunity cost of producing 1 computer is 2 stereos, and Dana's opportunity cost of producing 1 computer is 1 stereo. Rather than absolute advantage, comparative advantage is the driving force of specialization. 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. 1. (200 huts, 30,000 bowls) and (150 huts, 35,000 bowls), b. 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? d. absolute advantage is the driving force of specialization 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. Which of the following could cause an increase in the budget deficit? Shawn has a comparative advantage in the production of donuts. 1. P. 54 i. Def: Opportunity cost is whatever must be given up to obtain some item. Suppose a gardener produces both green beans and corn in her garden. Rather than absolute advantage, comparative advantage is the driving force of specialization. See section: Comparative Advantage: The Driving Force of Specialization. NO PLAGIARISM. If she must give up 14 bushels of corn to get 5 bushels of green beans, then her opportunity cost of 1 bushel of green beans is, Suppose a gardener produces both green beans and corn in her garden. Comparative Advantage: The Driving Force of Specialization A. Assume for the : 1486256. Assume for Namibia that the opportunity cost of each hut is 200 bowls. As a first step in developing this principle, consider the following question. always less than the dollar value of the item. (200 huts, 40,000 bowls) and (150 huts, 30,000 bowls) Comparative Advantage: The Driving Force of Specialization A. This increase in the size of the economic pie can be used to make everyone better off. 7. (200 airplanes, 5,000 cars) and (150 airplanes, 4,000 cars), b. 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). Which of these pairs of points could be on Namibia's production possibilities frontier? 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