مشاركة: عاوز تبدء تذاكر cma بارت واحد ابدء معايا
What is a real life example of comparative versus absolute advantage
An example would be...
The cost of producing a barrel of oil in the US is 10 labor hours and 12 labor hours in Mexico. The cost of producing a yard of cloth in the US is 12 labor hours and 13 labor hours in Mexico.
The United States has ABSOLUTE advantage in both markets, meaning it is cheaper for us to produce both of these items in terms of labor hours.
If the US and Mexico opened trade in the oil and cloth market, the US's relative price for oil would be
10 / 12 = 1 / x
x = 1.2 yards of cloth per barrel of oil
and the US price for cloth would be:
12 / 10 = 1/x
x = .83 barrels of oil per yard of cloth
Meanwhile, Mexico's relative prices would be:
Oil: 12 / 13 = 1/x
x = 1.083 yards of cloth per barrel of oil
Cloth: 13 / 12 = 1/x
x = .923 barrels of oil per yard of cloth
Mexico has comparative advantage in oil because its relative cost per barrel of oil is cheaper than in the United States (US: 1.2 vs. Mexico: 1.083). The US, however, has comparative advantage in cloth (US: .83 vs. Mexico: .923)
This means that the United States could trade cloth with Mexico at a profit.