Identify Two Major Trade Advantage

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2. Identify two major of trade advantage. The two major of trade advantage are absolute advantage and comparative advantage. Absolute advantage define as the ability of a country, individual, company or region to produce a good or service at a lower cost per unit than the cost at which any other entity produces that good or service. In the other word, it means that less resource are needed to produce the same amount of goods. For example, with one unit of resource, Country A can produces 60units of textiles or 50 units of steel. While Country B can produces 40 units of textiles or 70 units of steel. In this situation Country A has the absolute advantage in production of textiles because Country A can produce more textiles with one unit of resource. While Country B has the absolute advantage in production of steel because Country B can produce more steel with one unit of resource. While Comparative advantage is the ability of a firm or individual to produce goods and services at a lower opportunity cost than other firms or individuals. A comparative advantage gives a company the ability to sell goods and services at a lower price than its competitors and realize stronger sales margins. For example, with one unit of resource, Country A can produce 320units of textiles and 40units of steels. While Country B produce 80 units of textiles and 20 units of steels. Now we need to look at the opportunity cost. For country A, the opportunity cost of producing one extra unit of textiles is 0.125unit of steels (40units steels/320units textiles). The opportunity cost of producing one extra unit of steels is 8 units of textiles (320unit textiles /40units steels). For country B the opportunity cost of producing one extra unit of textiles is 0.25unit of steels (20units steels/80units textiles). The opportunity cost of producing one extra unit of steels is 4 units

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