"Two countries can achieve gains from trade even if one of the countries has an absolute advantage in the production of all goods." Explain. (includes detailed example)

In the world market, countries trade products they wouldnt be able to introduce on their own. Countries like Cuba defines in cigar output, lacquer in electronics, and Russia in egg on up technology. However, even if a pastoral has an absolute proceeds in producing all goodnesss, they hitherto will benefit from trade. many an(prenominal) frugal factors are involve with trade. Among the major factors are fortune prices, comparative utility, specialization and in the end trade. Opportunity make up is defined as the look upon of the best selection forgone when an item or operation is chosen. In other words, chance price is the speak to of choice. For caseful: the chance cost of producing a auto is the time that couldve been use of goods and services to produce something else, say paper. For a hoidenish ( earth A) that has an absolute proceeds ( the skill to produce something exploitation fewer resources than other producers use ) in producing both cars and paper, the opportunity cost of producing say, 1 car is the production of 3 loads of paper. Thus, what product a country chooses to alter on mustiness be chosen so as to produce as much as practicable composition suffering as little opportunity cost as possible.

Which goods the country should specialize on should be monitored by the faithfulness of comparative advantage, which states that: the country with the lowest opportunity cost of producing a particular good should specialize in producing that good. By specializing on a sure good, a country lowers the opportunity cost of that good by forgoing production of other goods. For example: Say country A has an absolute advantage in producing cars as intumesce as paper, and the opportunity cost of producing 1 car is 3 tons of paper. Country B however, produces 1 car at an opportunity cost of 6 tons of paper. If these two... If you want to cling a full essay, lodge it on our website: Ordercustompaper.com

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