"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 point of intersections they wouldnt be able to disclose on their own. Countries like Cuba defines in cigar output, Japan in electronics, and Russia in move up technology. However, even if a bucolic has an lordly advantage in producing all goods, they still will social welf ar from trade. Many frugal factors are involved with trade. Among the major factors are opportunity prices, comparative advantage, specialization and finally trade. Opportunity price is defined as the look upon of the best alternative forgone when an relic or activity is chosen. In other words, opportunity address is the price of choice. For font: the opportunity cost of producing a railroad car is the time that couldve been used to produce something else, say paper. For a country (country A) that has an absolute advantage ( the skill to produce something using fewer resources than other producers use ) in producing both cars and paper, the opportunity co st of producing say, 1 car is the production of 3 lashings of paper. Thus, what product a country chooses to peg down on must be chosen so as to produce as some(prenominal) as possible composition suffering as itsy-bitsy 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 terminal opportunity cost of producing a particular good should specialize in producing that good. By specializing on a certain good, a country lowers the opportunity cost of that good by renouncement production of other goods. For example: Say country A has an absolute advantage in producing cars as well as paper, and the opportunity cost of producing 1 car is 3 gobs of paper. Country B however, produces 1 car at an opportunity cost of 6 tons of paper. If these two... If you want to get a full essay, order it on our website: BestEssayCheap.com

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