| In this scenario, Country B must sacrifice 1.875 pounds of coffee to make a pound of tea, but Country A has to sacrifice 2 pounds of coffee to make one pound of tea. Because Country B gives up less tea to make the same amount of coffee, it has a comparative advantage over Country A. Show
How do you calculate an absolute advantage?To calculate absolute advantage, you must know the cost of the inputs involved in making something, as well as how much that region can make using those inputs. Then, compare the production capacity of one area to the production capacity of another, assuming both use the same inputs. For example, Harry and Sally both like to knit and sell handmade scarves out of their home. They use the same raw materials and purchase them at the same price from the same store, meaning that the difference in production input is the amount of time it takes to make a scarf. Harry can make five scarves in 20 hours, and Sally can make four scarves in 20 hours. In this scenario, Harry has an absolute advantage because he can make one more scarf than Sally using the same amount of time. Put another way; he makes one scarf every four hours, and Sally makes one every five hours. Sally is 80% as efficient as Harry when it comes to making scarves. Does the US have an absolute advantage?In the real world, it can be challenging to determine whether one country has an absolute advantage. The theory of absolute advantage assumes only two countries and two products are involved in trade, but real-life business involves many more parties and goods. Some of the advantages that the United States has over other countries include a skilled workforce and many natural resources. This means that the U.S. likely has an absolute advantage when it comes to producing high-tech services and services like computers and software, as well as things that rely on large areas of farmland, such as corn. Ready to start investing? Sign up for Robinhood and get stock on us.Sign up for Robinhood New customers need to sign up, get approved, and link their bank account. The cash value of the stock rewards may not be withdrawn for 30 days after the reward is claimed. Stock rewards not claimed within 60 days may expire. See full terms and conditions at rbnhd.co/freestock. Securities trading is offered through Robinhood Financial LLC. Related ArticlesWhat is the Law of Supply and Demand? You May Also LikeWhat is an Incumbent? Updated February 09, 2021 An incumbent is a person or group who already holds a position or role within a hierarchy, such as a corporation or a government. What is Cash Flow? Updated May 20, 2022 Cash flow is the net amount of cash or cash equivalents flowing into and out of a company during a particular period of time. What is Manufacturer's Suggested Retail Price? Updated June 28, 2022 The Manufacturer Suggested Retail Prices (MSRP) is the price at which a product manufacturer suggests that a retailer sell a product, though the retailer doesn’t have to abide by the suggestion. What is the Organization of the Petroleum Exporting Countries (OPEC)? Updated September 24, 2020 The Organization of the Petroleum Exporting Countries (OPEC) is a 14-member international organization of countries that export oil. What is a Return? Updated October 03, 2022 A return is the amount of money that an investor makes or loses from their investment over some period of time – It is expressed either in dollars or as a percentage of the original amount invested. What is a FICO score? Updated October 03, 2022 A FICO score is a rating of a person’s creditworthiness that lenders use to assess how well someone handles debt and whether it’s a good idea to loan them money.
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When one person country can produce something better than any other person country?
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