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Discussing Comparative Advantage

1. What is comparative advantage?
2. What can countries do to create comparative advantages and thereby better compete in a global market?
3. What can individuals do to create comparative advantages to better compete in a global market?

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1. What is comparative advantage?
Comparative advantage occurs when an organization is able to create products and benefit from those products by sacrificing less than another organization that doesn't have comparative advantage while making more profit. For example, let's assume organization A is able to produce 2 pens per hour and pay 2 workers a total of $30 per hour, while organization B is able to produce 4 pens per hour. In order to produce the 2 extra pens per hour than organization A, organization B has to hire 4 more workers and pay them a total of $60 per hour. Assuming that both companies sell the pens at the same cost, then organization B will have a loss of $30 because the $30 are used towards worker salary. As a result, organization A has comparative advantage.

2. What can countries do to create comparative advantages and thereby better compete in a ...

Solution Summary

This solution discusses the concept of comparative advantage, what countries can do to create comparative advantages relating to global markets as well as individual to compete in a global market.

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