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    Comparative vs Absolute economic advantage

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    analysis of the international economy

    Discuss reasons why the economic growth of the four countries varies so markedly. How does trade influence the strength of the economy worldwide?

    The 4 countries are:
    Saudi Arabia
    Democratic Republic of Congo

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    Solution Preview

    I am picking this up with very short amount of time - I have provided as much as I could within your deadline.

    Comparative & Absolute Advantage

    A person has a comparative advantage at producing something if he can produce it at lower cost than anyone else.
    Someone has an absolute advantage when they are the best at doing something.
    Someone does not automatically have a comparative advantage when they have an absolute advantage. This is because a person might have an absolute advantage in doing a number of different things - however, while they are actively engaged in one thing, they are giving up time they could be spending doing something else that they may also have a comparative advantage in. This means that they have to determine the opportunity cost - the difference in value between producing one thing over another.
    Everyone has a comparative advantage at producing something. Everyone has something that they can do that will allow other people to do something else that they do better. So even if you are the worst at something, there will be someone out there that still will make gains by having you do that thing, while they do something else. The essence of this is about specialization. If you specialize in something you get very good at it and it is better for you to stick with your speciality and buy other needs, than to try to do everything yourself as a generalist.
    Analysis of the international economy
    My apologies for providing links without a complete analysis - but time is short:

    Discuss reasons why the economic growth of the four countries varies so markedly.

    An economic system refers to the laws and institutions which determine who owns economic resources. It also outlines how people buy and sell those resources and how the production process makes use of those resources to produce goods and services.

    The 4 countries are:

    USA - Capitalist - Open Economy

    Basically a market economy, where individuals and businesses play multiple roles within the economy, as consumers, producers, workers, etc. Thus, the market is complicated and has many factors which determine the price of a particular good or service.

    China - Communist - Central Economic Control
    Since the 1980s, China's Communist Party has been using ...

    Solution Summary

    Comparative and absolute advantage play a significant role in world economic trade and how countries can use these ideas to increase their trade and overall economic advantage.