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Topic: Comparative advantage

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Absolute advantage

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David Ricardo

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	Russell Roberts, Treasure Island, The Power of Trade, Part I: Library of Economics and Liberty
		The textbook story of this transformation is that the Fishers have a comparative advantage in fishing.
		Notice that there are two senses of comparative in the previous sentence—we are comparing fishing to water collecting and the Fishers to the Palmers.
		Comparative advantage has no meaning in a one-good world or in a one-family economy.
	www.econlib.org /library/Columns/y2006/Robertscomparativeadvantage.html (2378 words)

	Trade: Chapter 40-0: The Theory of Comparative Advantage - Overview
		Because the idea of comparative advantage is not immediately intuitive, the best way of presenting it seems to be with an explicit numerical example as provided by David Ricardo.
		Advantageous trade based on comparative advantage, then, covers a larger set of circumstances while still including the case of absolute advantage and hence is a more general theory.
		Another striking result is that the technologically superior country's comparative advantage industry survives while the same industry disappears in the other country, even though the workers in the other country's industry has lower wages.
	internationalecon.com /v1.0/ch40/40c000.html (0 words)

	Comparative advantage: A Glossary of Political Economy Terms - Dr. Paul M. Johnson
		That is, the economic actor with a comparative advantage can produce the particular good or service by giving up less value in other goods or services that he could otherwise produce with his labor and resources than the other economic actors would have to give up in producing that same good or service.
		Note that an economic actor can display a comparative advantage in the production of a particular good even when the other actor happens to have an absolute advantage in producing the same good.
		The distinction between comparative and absolute advantage is important because it is comparative advantage (and not absolute advantage) that determines the amount of the potential gains in output from specialization and trade between the two actors.
	www.auburn.edu /~johnspm/gloss/comparative_advantage (923 words)

	Asia Times
		Comparative advantage is like statistics: it may show part of the truth, but it may also hide the truth and fool the public.
		Comparative advantage is usually explained in terms of an example with two countries and two goods.
		The theorem of comparative advantage lends itself to that kind of abuse because its validity is limited to trade between countries with similar wage-price levels.
	www.atimes.com /atimes/Global_Economy/EA29Dj02.html (1796 words)

	Economics Interactive
		Indeed, the lawyer’s absolute advantage in typing still yields a comparative disadvantage in secretarial work, and, although furniture movers have absolute disadvantages at both athletics and furniture moving, their absolute disadvantage is relatively the least in moving furniture, so this is an area of comparative advantage for them.
		Being comparatively disadvantaged in all areas is impossible because relative magnitudes determine comparative advantage.
		Comparative advantage is also molded by: (a) climate and location, (b) institutional and cultural factors, (c) government policies, (d) the skills and education of the populace, (e) the vigor of internal competition and size of domestic markets, and (f) the ability of domestic entrepreneurs to innovate and cultivate global markets.
	www.unc.edu /depts/econ/byrns_web/Economicae/Essays/ABS_Comp_Adv.htm (923 words)

	Teacher's Corner: A Brief History of the Concept of Comparative Advantage: Library of Economics and Liberty
		The first use of the term "comparative advantage" in the sense in which we use it today is similarly difficult to pin down.
		In both the intellectual origin of comparative advantage and the use of the term, Ricardo must in some measure share the credit with at least two of his countrymen.
		That treatment was even expansive enough (in Chapter 25, paragraph 12) to describe foreign trade and comparative advantage ("comparative difficulty of production," in the passage) in a way that, depending on how read, could please both a WTO delegate concerned with economic efficiency and a distributionist protester from across the barricade.
	www.econlib.org /library/Columns/Teachers/comparative.html (0 words)

	Trade: Chapter 40-0: The Theory of Comparative Advantage - Overview
		Advantageous trade based on comparative advantage, then, covers a larger set of circumstances while still including the case of absolute advantage and hence is a more general theory.
		Profit-seeking firms in each country's comparative advantage industry would recognize that the price of their good is higher in the other country.
		Another striking result is that the technologically superior country's comparative advantage industry survives while the same industry disappears in the other country, even though the workers in the other country's industry has lower wages.
	www.internationalecon.com /v1.0/ch40/40c000.html (3391 words)

	development models - comparative advantage
		Comparative advantage is used to justify free trade and oppose protectionism.
		Comparative advantage is based on differing opportunity costs reflecting the different factor endowments of the countries involved.
		Comparative advantage in the production of lower valued added textiles has shifted away from DC's to LDC economies where unit labour costs are lower.
	www.tutor2u.net /economics/content/topics/development/development_models_comparative_advantage.htm (938 words)

	Comparative Advantage \| The Foundation for Economic Education: The Freeman, Ideas on Liberty
		One of the most powerful and straightforward economic concepts is “comparative advantage.” As important and simple as this concept is, however, it seldom seems to inform public discussions of international trade.
		Comparative advantage is what determines whether it pays to produce a good or import it.
		Compared to what has to be sacrificed, Brazil produces computers for only two-thirds as much as it costs in the United States.
	www.fee.org /publications/the-freeman/article.asp?aid=4962 (1122 words)

	Russell Roberts, Treasure Island, The Power of Trade, Part I: Library of Economics and Liberty
		Notice that there are two senses of comparative in the previous sentence—we are comparing fishing to water collecting and the Fishers to the Palmers.
		Comparative advantage has no meaning in a one-good world or in a one-family economy.
		An easier way to understand the lesson of comparative advantage is to see that there are two ways the Palmers to get fish, the direct way and the roundabout way.
	econlib.org /library/Columns/y2006/Robertscomparativeadvantage.html (2378 words)

	Comparative Advantage
		His writing served as the basis for the principle of comparative advantage, under which total output will be increased if people and nations engage in those activities for which their advantages over others are the largest or their disadvantages are the smallest.
		Since the opportunity cost of fish is lower for B than for A, one can say that B has a comparative advantage in producing fish, so B should produce fish to maximize the island's output.
		Compared to the case of no specialization, there is a net gain of 2 coconuts with no loss of fish.
	www.netmba.com /econ/micro/comparative-advantage (556 words)

	Free Trade: The Theory of Comparative Advantage
		Comparative advantage is defined as a situation in which the opportunity cost of producing a commodity is less for one party than another.
		Their self-interest to specialize in that commodity in which they have a comparative advantage leads to an increase in output, thereby benefiting both countries.
		The theory of comparative advantage is the corner stone of the free-trade argument.
	people.westminstercollege.edu /faculty/jwatkins/263/trade.htm (596 words)

	Production possibilities and constant opportunity costs (Site not responding. Last check: )
		In this case, the principle of comparative advantage requires that countries import the products in which its comparative advantage is weakest and export the product in which its comparative advantage is strongest.
		The two-good, two-country assumption is just a simplifying assumption, but it is still true that each country will have a comparative advantage in at least one kind of good, and will benefit by exporting that good and importing others.
		The theory of comparative advantage suggests that trade tends to redirect people away from low-productive jobs in industries having comparative disadvantage into high-productive jobs in industries of comparative advantage.
	www.eco.utexas.edu /graduate/Konstantinova/i2_Gains.htm (2780 words)

	Comparative Adv. and FPT
		A country has a comparative advantage in the production of a good if the opportunity cost of producing the good is lower in that country than other countries.
		of comparative advantage in terms of opportunity costs (taken from Jim Brander): A dentist who is very good at cleaning patients’ teeth would still be better off hiring a dental hygienist to do cleaning and focus his or her time on more sophisticated work.
		Cleaning teeth is not a dentist’s area of comparative advantage, even if the dentist is very good at it (even better than the hired dental hygienist).
	pacific.commerce.ubc.ca /ruckman/comparativeadv.htm (1993 words)

	A note on comparative advantage and money
		Since the notion of comparative advantage is mostly used as a framework in analyzing exchange and specialization at the international scale, such a change reflects not only that geographers have reached out for new conceptual tools in geographic analysis, but also the increasing importance of international coverage in college economic geography courses.
		The essence of comparative advantage is to express the cost of a good in terms of the amount of other goods.
		Compared with the wine's cost in country A of 0.5 pounds of cheese, the revenue of 0.8 pounds of cheese represents a profit of 0.3 pounds of cheese.
	www.siue.edu /GEOGRAPHY/ONLINE/zhou.htm (3791 words)

	Comparative Advantage
		According to the principle of comparative advantage, the gains from trade follow from allowing an economy to specialise.
		Because it is relative advantage that matters, it is meaningless to say a country has a comparative advantage in nothing.
		The term is one of the most misunderdstood ideas in economics, and is often wrongly assumed to mean an absolute advantage compared with other countries.
	www.wto.org /english/res_e/reser_e/cadv_e.htm (0 words)

	The Theory of Comparative Advantage
		His other great contribution, the law of comparative cost, or comparative advantage, demonstrated the benefits of international specialisation of the commodity composition of international trade.
		While Smith understood comparative advantage, it was left to Ricardo to formalize the concept.
		According to the principle of comparative advantage, the gains from trade follow from allowing an economy to specialize.
	members.tripod.com /docrey0/DAVID1.HTM (1017 words)

	The Unofficial Paul Krugman Web Page
		The idea of comparative advantage -- with its implication that trade between two nations normally raises the real incomes of both -- is, like evolution via natural selection, a concept that seems simple and compelling to those who understand it.
		Comparative advantage is an old idea; intellectuals who want to read about international trade want to hear radical new ideas, not boring old doctrines, even if they are quite blurry about what those doctrines actually say.
		In sum, while the concept of comparative advantage may seem utterly simple to economists, in order to achieve that simplicity one must invoke a number of principles and useful simplifying assumptions that seem natural and reasonable only to someone familiar with economic analysis in general.
	www.pkarchive.org /trade/ricardo.html (6006 words)

	Principles of Macroeconomics - Section 2: Main
		Despite the absolute advantage the U.S. enjoys in the production of computers and lumber, each country will have a comparative advantage in the production of those goods in which they are relatively, not absolutely, more efficient.
		In this case, comparative advantage is a relatively static concept, as natural resources are fixed over long periods of time.
		For some goods, the historical relationship of comparative advantage based on endowments and skills can rapidly be altered because of changes in the comparable international prices of those goods.
	www.colorado.edu /Economics/courses/econ2020/section2/section2-main.html (2495 words)

	Comparative Advantage: Archive Entry From Brad DeLong's Webjournal
		It is important in assessing comparative advantage that "efficiency" be defined in its broadest possible sense.
		Here again, as with capital mobility, it is the transnational corporations that lubricates the wheels by serving as 'global knowledge brokers.' Without multinational firms, we might still live in a world resembling that of comparative advantage based on a country's relative endowment of skills, but it is no longer the world we live in.
		I believe that definition is incorrect because a country can have a comparative advantage in something that is less efficient than the average efficiency level of its own country, just because other country is relatively more efficient in the things we are best doing.
	www.j-bradford-delong.net /movable_type/archives/000129.html (1427 words)

	Angry Bear
		In determining where the US has a comparative advantage, each category of goods should be compared to the overall ratio for total exports and imports.
		By that definition the US has a comparative advantage in the production of those goods that have an X/M ratio that is higher than 0.58 in 2004, or 0.55.
		The US's comparative advantage hasn't changed as a result of its trade deficit, so as soon as individuals and/or the federal government in the US start spending less and saving more, we can expect trade surpluses to return in those categories.
	angrybear.blogspot.com /2005/05/uss-comparative-advantage.html (408 words)

	Lesson 3: Sources of Comparative Advantage
		Thus, factor conditions, not technology is the source of comparative advantage in this theory.
		Comparative advantage arises from differences in relative national factor endowments.
		This gave Japan an advantage when competition in the automobile shifted to the provision of product variety (i.e., different models for different types of consumers).
	pacific.commerce.ubc.ca /john/sources.htm (1364 words)

	Comparative Advantage
		Comparative advantage in a good is attributed to the low opportunity cost producer of that good.
		To understand the concept of comparative advantage, you must therefore understand the concept of opportunity cost -- the notion that in choosing any course of action, we give up the opportunity to pursue another course of action.
		The row labelled "Specialize" shows the results of both A and B devoting all their resources to the good in which they have a comparative advantage.
	www.pitt.edu /~upjecon/MCG/MICRO/COMPADV/CompAdv.html (2001 words)

	Comparative Advantage
		According to the theory of comparative advantage, even if you sing, hammer, or compute better than me, we'll both be better off by trading the things we do comparatively well.
		Now it is possible to determine who has a comparative advantage in producing cloth by comparing the relative costs in terms of food forgone.
		By comparing Clarissa's production with her consumption possibility sets, we see that at every level of food consumption she can have the same or more clothing than she would by producing herself.
	faculty.washington.edu /jacoby/BLS345/Compadvtutor.html (1495 words)

	Comparative Advantage Reading
		Comparative advantage is one of the most difficult concepts to understand in the field of economics.
		The concept of Comparative Advantage is based solely on who has the lower opportunity cost of producing something.
		Whoever has the lower opportunity cost (whoever gives up less) for a particular good is said to have the comparative advantage in that good and should therefore specialize in that good (make more than he/she needs and trade off the excess).
	www.ilstu.edu /~cemushr/ECO105/comparativeadvantage.htm (867 words)

	The Theory of Comparative Advantage
		David Ricardo conceived his comparative advantage model at a time when even his native England was not yet a fully industrial nation.
		Comparative advantage is a dynamic function, subject to change over time as rivals actively compete, trying to better their position and knock out the others.
		The models, case studies, theorems of comparative advantage, are a static, simplistic, closed-end ball of assumptions that portends to relate to a dynamic, chaotic, violent world of Nations each seeking short, intermediate and long-term strategic advantages over other nations.
	www.freerepublic.com /focus/f-news/1101717/posts (9342 words)

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