When one country can produce a product more cheaply than another country can this is called?

comparative advantage
A comparative advantage exists when a country can produce goods at a lower opportunity cost compared to other countries. It is not possible for a country to have a comparative advantage in all goods. However, a country can have an absolute advantage in all goods.

What is one of the primary reasons that trade between nations takes place?

The five main reasons international trade takes place are differences in technology, differences in resource endowments, differences in demand, the presence of economies of scale, and the presence of government policies. Each model of trade generally includes just one motivation for trade.

Do both countries benefit when two countries decide to trade products or services?

Trade between two agents or countries allows the countries to enjoy a higher total output and level of consumption than what would have been possible domestically. Canada and Mexico can each specialize in the good they have a comparative advantage in and exchange with one another.

Why do countries trade using comparative advantage?

Comparative advantage is an economy’s ability to produce a particular good or service at a lower opportunity cost than its trading partners. … Comparative advantage suggests that countries will engage in trade with one another, exporting the goods that they have a relative advantage in.

Why do countries trade and what determines what they trade?

Countries trade with each other when, on their own, they do not have the resources, or capacity to satisfy their own needs and wants. By developing and exploiting their domestic scarce resources, countries can produce a surplus, and trade this for the resources they need.

What does the US have comparative advantage in?

The United States’ comparative advantage is in specialized, capital-intensive labor. American workers produce sophisticated goods or investment opportunities at lower opportunity costs. Specializing and trading along these lines benefit each.

Why free trade is very important in comparative advantage?

Free trade can help nations improve job opportunities in the economic market. … This comparative advantage usually allows companies to offer higher employee wages, since few nations or companies are able to reproduce the specific goods.

Why does comparative advantage matter more than absolute advantage for trade?

Trade decisions based on comparative advantage between countries are always mutually beneficial. Comparative advantage helps in more effective decision-making for countries for resource allocation and production hence more beneficial for economies than an absolute advantage.

Why is comparative advantage important?

The benefit of comparative advantage is the ability to produce a good or service for a lower opportunity cost. A comparative advantage gives companies the ability to sell goods and services at prices that are lower than their competitors, gaining stronger sales margins and greater profitability.

Which products the US enjoys a comparative advantage in and exports?

The United States has a revealed comparative advantage in exporting capital goods, chemicals, miscellaneous goods, plastics, rubber and transportation.

Does the US seem to have a comparative advantage in goods or services?

While the balance of trade in goods is negative, the United States runs a large surplus in the trade in services, reflecting its global comparative advantage in this sector. This surplus reached $242 billion in 2017, offsetting about 25% of the deficit in the trade of goods.

Why can free trade between the two countries make consumers of both countries better off?

Why can free trade between two countries make consumers of both countries better off? Free trade between two countries expands each country’s effective production possibilities frontier and allows each country to consume at a point above its original production possibilities frontier.

Can countries benefit from trade even if they do not export much?

Can countries benefit from trade even if they do not export much? Some countries realize economic growth not just from the export of their own products, but from providing logistics services to cargo from and to other countries. For example, Singapore, The Netherlands, and Belgium.

When a nation has a comparative advantage in producing a product then in comparison with any other nation it can produce that product?

Comparative advantage is where one nation can produce a good at a lower opportunity cost than another. It differs from absolute advantage in the fact that it considers opportunity cost. So the nation may be not have an absolute advantage, but is able to produce a good at a lower opportunity cost.

What countries have comparative advantage?

For example Ireland has a comparative advantage in cheese and butter due to climate and a large amount of land suitable for dairy cows. China has a comparative advantage in electronics because it has an abundance of labor.

How do the exports of the United States give other countries a comparative advantage?

The United States has the comparative advantage in producing and exporting certain parts of the production process (the high-value-added processor chips, the innovative and complex software, and the fully assembled product), but has relinquished parts of the production process to other countries where that stage of …

Why does Japan have a comparative advantage in cars?

Japan has a comparative advantage in producing cars, since it has a lower opportunity cost in terms of grain given up. The United States has a comparative advantage in producing grain, since it has a lower opportunity cost in terms of cars given up.