2006-07-31 14:03:45 · 2 answers · asked by jodihemp@sbcglobal.net 1 in Social Science ➔ Economics
One country has to have economic advantage in the production of one or several goods over the other country in order for trade to happen. Absolute advantage happens when one country can produce a particular item for efficiently or for less input than the other (example: clothes can be produced in Indonesia for less than they can be produced in the USA). Comparative advantage occurs when country A can produce item 1 and 2 for less than they can be produced in country B, but because item 1 costs less to produce than item 2 in country A, they choose to produce item 1 and trade it for item two from country B. By doing so, they acquire item 2 for a cost that more closely resembles that of item 1. 12Ab2ab1212b1b Does that make sense?
2006-07-31 14:34:55 · answer #1 · answered by Mike H 2 · 0⤊ 0⤋
Absolute advantage plays no role whatsoever; international trade is all about comparative advantage.
2006-08-01 06:33:32 · answer #2 · answered by NC 7 · 0⤊ 0⤋