|
| |
Comparative advantage is when a nation can produce a particular good at a lower opportunity cost than other nations. This is a foundational concept in economics that is used to model international trade and the competitiveness of nations. A similar concept, competitive advantage is typically used to model the competitiveness of firms and individuals. The following are illustrative examples of comparative advantage.
CostA nation can produce cotton for $1 a kilogram and wool for $17. Cotton can be sold to other nations for $2. Wool can be imported from other nations for $5. The nation benefits from exporting cotton and importing wool.A nation produces a technically superior model of aircraft for $120 million using 1 million hours of labor. This represents a productivity rate of $120 / hour. The nation can produce 100 widgets worth $0.10 with an hour of labor. This represents a productivity rate of $10 / hour. The nation has an comparative advantage in aircraft and benefits from producing aircraft and importing widgets.
A nation can produce organic green tea at a price of $2 per kilogram. This represents a cost advantage over all other nations. This particular type of green tea can be sold for $5 per kilogram to other nations, a significant premium over cost. The same nation can produce organic apples for $2 per kilogram which fetch $2.50 per kilogram on international markets, unlike green tea, other nations can produce apples cheaper. Over time, many of the nation's farms switch from apples to green tea as it is more profitable.
A nation produces wine that is valued for its quality. Where an average bottle of wine fetches $4 in trade. Wine from this nation commonly fetches $17 in trade. As such, vineyards in this nation generate $100,000 in sales per acre of cultivated land each year. This beats other crops in the region. For example, pumpkins generate $23,000 per acre. As such, the nation has a comparative advantage in wine based on the quality of the product and its ability to generate more value from resources such as land, water and labor.|
| Type | | | Definition | When a nation can produce a particular good at a lower opportunity cost than other nations. | | Related Concepts | |
International Economics
This is the complete list of articles we have written about international economics.
If you enjoyed this page, please consider bookmarking Simplicable.
An overview of the topics covered by international economics.
An overview of globalization.
The net gain achieved by countries, organizations or individuals from trade.
The definition of common goods with examples.
The definition of international economics with examples.
The definition of currency war with examples.
An overview of comparative advantage with examples and comparisons.
The definition of global culture with examples.
A complete overview of free markets.
The definition of economic change with examples.
A list of economic theories that are particularly useful for business.
The tendency for people at high risk to buy insurance.
A list of economic positions or capabilities that allow you to outperform in a particular industry.
A definition of knowledge work with examples.
A definition of production with examples.
An overview of post-scarcity.
The common types of economic infrastructure.
The common types of business competition.
The common types of inefficiency.
An overview of supply with common examples.
TrendingThe most popular articles on Simplicable in the past day.
Recent posts or updates on Simplicable.
Site Map
© 2010-2023 Simplicable. All Rights Reserved. Reproduction of materials found on this site, in any form, without explicit permission is prohibited.
View credits & copyrights or citation information for this page.
|
