What is comparative advantage? Evaluate the major sources of comparative advantage. Select two major sources of comparative advantage and provide an example and explanation as to why each is a comparative advantage. As always, please provide references to support your efforts.
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Comparative advantage (CA) is an economic principle that holds that an entity or an individual can produce particular goods or services at a lower opportunity cost as compared to other entities or individuals, thus that firm can sell the specific goods or services that it producers at a lower opportunity cost at prices that are lower than those of its competitors. CA arises from the ability of an entity or individual to access some factors of production at a cheaper cost than competitors, thus making that entity or individual to fore-go producing those goods or services that cost more, and instead focus on producing the particular good or service that costs it less, making it a market leader in producing specific goods and services.
Major Sources of CA
(1) Climatic differences and other natural resources - this mainly affects agricultural production because some areas are better suited for the production of particular crops than other areas. For ...
This solution provides a comprehensive definition of comparative advantage. The solution also evaluates the major sources of comparative advantage, and examines why these sources offer a comparative advantage.