Running head: MACROECONOMICS 1 Macro Economics Name Institution
MACRO-ECONOMICS 2 Q1 Ricardo established the theory of comparative and absolute advantage to illustrate free international trade could have a benefit between two countries even if one of the companies produces all the tradable commodities efficiently than the other. The comparative advantage takes extensive holistic views with the perception that a country of business acquires resources in producing varieties of goods. Hence, the opportunity cost of presented options equates to forfeit benefits, which can be achieved by choosing the available comparison (Gehrke 796). Generally, if the profit emanating from two products is identified, the analyst computes the opportunity cost in establishing a preferred option over the other. For instance, assuming the UK has enough resources for producing either smartphone or laptops, there are a number of alternatives in the stand. The UK can develop and produce 12 laptops or 15 smartphones. Bearing in mind the laptop can generate a high profit. Hence the opportunity cost occurs as the difference in lost values from the production of smartphones rather than the laptops. Thus, in case the UK earns $ 95 for a laptop and $45 for a smartphone, the overall opportunity cost is $50. Therefore, if the UK is presented with an option to choose between the two products, it would choose to deal and produce more laptops as it earns a lot compared to smartphones. Therefore the comparative advantage resides or drives the urge to utilize the opportunity that makes a vast and appropriate profit. The absolute advantage indicates that the difference between the varying ability as well as the nation's ability to produce goes effectively is a basis of opportunity and growth. The nature of this field focuses on the efficiency associated with the production or generation of a single profit (Maneschi 38). Through analyzing the absolute advantage, it assists a country in
MACRO-ECONOMICS 3 understanding the economic situation. It avoids the development of products that would, in turn, yield little or no demand in the market. In case the situation is not analyses, the resulting outcomes might lead to losses if the products yield no profits, and the input consumes the capital. The absolute advantage of a country or the disadvantage particularly in the industry might play a significant role in the kind of products it chooses to produce In the absolute advantage, for instance, if Germany and Japan can both of them produce automobiles, where Japan can manufacture sports car which is of high quality and profit. Thus Japan is termed to have an absolute advantage. Hence, Germany can have a better opportunity compared to Japan and serve to devote their limited resources along with human resources to another sector or an alternative kind of vehicles such as electric cars. Thus Germany might enjoy the absolute advantage instead of competing with Japan's efficiency.
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