international business tutorial question
1)What is meant by absolute advantage? Describe how it works using numerical example.
The ability of a country, individual, company or region to produce a good or service at a lower cost per unit than the cost at which any other entity produces that good or service. For example, Vietnam can produce 1000 million tons of rice while South Korea can produce 800 million tons of rice => Vietnam has absolute advantage (since it can produce more than Korea)
2) What is meant by the term comparative advantage? How does it differ from an absolute advantage?
An advantage that a firm has over its competitors, allowing it to generate greater sales or margins and/or retain more customers than its competition. There can be many types of competitive advantages including the firm's cost structure, product offerings, distribution network and customer support. Some simple differences between the two would be, comparative advantage uses the driving force of specialization. Another thing of comparative are, if one country has an absolute advantage or disadvantage in any kind of output, any of the other countries will maybe profit from majoring in and distributing those products. Absolute advantage has a country that economically has a benefit over another, in a precise moral, when it produces that moral at a lower cost. Also a country using the same contribution of properties a country with an absolute advantage will have superior productivity.
3) Explain why countries can gain from trade even without having an absolute advantage.
Countries can gain from trade even without having an absolute advantage because comparative advantage implies that a country can produce a good for less cost than other countries but only when it trades. This is true because lower opportunity cost means less goods of any other type are lost when produced. This means that a country loses less than others for producing this good, so if it traded that good to other countries, it would cut their loss.
The ability of a country, individual, company or region to produce a good or service at a lower cost per unit than the cost at which any other entity produces that good or service. For example, Vietnam can produce 1000 million tons of rice while South Korea can produce 800 million tons of rice => Vietnam has absolute advantage (since it can produce more than Korea)
2) What is meant by the term comparative advantage? How does it differ from an absolute advantage?
An advantage that a firm has over its competitors, allowing it to generate greater sales or margins and/or retain more customers than its competition. There can be many types of competitive advantages including the firm's cost structure, product offerings, distribution network and customer support. Some simple differences between the two would be, comparative advantage uses the driving force of specialization. Another thing of comparative are, if one country has an absolute advantage or disadvantage in any kind of output, any of the other countries will maybe profit from majoring in and distributing those products. Absolute advantage has a country that economically has a benefit over another, in a precise moral, when it produces that moral at a lower cost. Also a country using the same contribution of properties a country with an absolute advantage will have superior productivity.
3) Explain why countries can gain from trade even without having an absolute advantage.
Countries can gain from trade even without having an absolute advantage because comparative advantage implies that a country can produce a good for less cost than other countries but only when it trades. This is true because lower opportunity cost means less goods of any other type are lost when produced. This means that a country loses less than others for producing this good, so if it traded that good to other countries, it would cut their loss.