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The Concept of Comparative Advantage

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.

Please add references.

Solution Preview

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 ...

Solution Summary

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.