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state and explain the law of coparative cost advantage?
A principle that states that every nation, worker, or production entity has a production activity that incurs a lower opportunity cost than that of another nation, worker, or production entity, [ which means that trade between the two can be beneficial to both if each specializes in the production of a good with lower relative opportunity cost. This law is most often studied in the confines of international trade, but it also applies to labor and other types of production. The law of comparative advantage is the guiding principle for international trade. It provides insight into why
and how nations engage in trade. In particular, it indicates why a technologically advanced nation is able to purchase goods produced by a nation with lesser technology. The key to the law of comparative advantage is opportunity cost, the value of foregone production. If very little production is foregone when a good is produced, then the opportunity cost is relatively low. As such, an extremely productive, technologically advanced nation is bound to forego a great deal of production and incur high opportunity cost to produce a given good, while a less productive, less advanced nation can produce the same good at a lower opportunity cost. ]
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Expert answered|selymi|Points 8092|
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Asked 4/25/2012 3:23:08 AM
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