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Absolute and Comparative Advantage
A country has an absolute advantage in producing a good (or service) if it is able to produce that good at a lower cost or use fewer resources in its production than its trading partner.
A country has a comparative advantage in producing a good if its opportunity cost of producing that good is less than that of its trading partner.
The United Kingdom has an absolute advantage in machines.
India has a comparative advantage in the production of cloth because the opportunity cost of a yard of cloth in India, 1/8 of a machine is less than the opportunity cost of a yard of cloth in the United Kingdom (1/2 of a machine).
The further away the world price of a good or service is from its autarkic price in a given country, the more that country gains from trade.
Total, Variable, Fixed, and Marginal Cost and Output:Variable,Fixed,Output:is the summation of all expenses that do not change as the level of production:varies.Total[Practice
Ricardian and Heckscher–Ohlin Models of Comparative Advantage:In the Heckscher–Ohlin Model also known as the factor-proportions theoryendowment of these factors are the source of a country’s comparative advantage.
Imports and Exports:Nettrade deficit.
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