Macroeconomics
Table 2: Comparative Advantage Example Country
1 Chair
1 Table
China
20 hours
50 hours
Singapore
10 hours
20 hours
Inthiscase,Chinawillhaveacomparativeadvantageintheproductionofchairs,whereasSingaporewill have a comparative advantage in the production of tables. In China, 1 table requires 2.5 timesmorethanchairstoproduce,andinSingapore,1tablerequires2 times more than chairs to produce. Alternatively, in China1chairtakes0.4inputcomparedtotables, whereas 1 chair in Singapore is equivalent to 0.5 tables. Diferentiating Between Comparative and Absolute Advantages Whilecomparativeadvantageisusedtoidentifyspecializationofcountriesbasedonopportunitycosts, absolute advantage measures which country can produce more output with agivenamountofinput. This measure essentially quantifes productivity. The concept ofabsoluteadvantagefocusessolelyon the effciency of production and does not consider the opportunity cost . A country can have an absoluteadvantageinmultiplegoods,evenifitdoesnothaveacomparativeadvantageinanyofthem. Absoluteadvantage doesnotnecessarilyleadtotrade ifbothcountriescanproduceallgoodswithan absolute advantage. Absoluteadvantageisdeterminedbylookingatthecountrythatproducesthehighestquantityofagood or service using the lowest amount of input or resources. Example: ThefollowingtableshowsthenumberofshirtsandhatseachworkercanproduceinItalyand Thailand in one year.
Table 3: Absolute Advantage Example
Output per Worker in One Year
Country
Shirts
Hats
Italy
500
100
Thailand
200
800
Inthisexample,Italyhasanabsoluteadvantageinproducingshirts,whereasThailandhasanabsolute advantageinproducinghats.Thisisduetothefactthat,duringthesametimeperiod,oneworkerinItaly canproducemoreshirtsthanaworkerinThailand,andoneworkerinThailandcanproducemorehats than a worker in Italy, regardless of opportunity costs.
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