The Theory of Comparative Advantage: Why specialisation is the key to success
By 50minutes
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About this ebook
This book is a practical and accessible guide to understanding and implementing the theory of comparative advantage, providing you with essential information and saving time.
In 50 minutes you will be able to:
• Master the notions of absolute and relative advantage rapidly
• Specialise in producing goods or services for which you have the strongest, or least weak productivity compared to others.
• Understand which are the strengths underlying the interactions of free trade at work within International trade.
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The Theory of Comparative Advantage - 50minutes
Key information
Names: The law of comparative advantage or the law of relative advantage.
Uses: Justification of international trade, the outsourcing of tasks in companies, the division of labour, specialisation and trade.
Why is it successful? The theory offers answers to the questions raised by the principle of absolute advantage put forward by Adam Smith (Scottish economist, 1723-1790), and provides proof that specialisation and trade are mutually beneficial and sources of wealth. It also provides advice to increase efficiency, and consequently productivity.
Key words:
Absolute advantage: The advantage held by a person who is able to produce the same product as someone else, but with a greater output for the same amount of resources.
Factor endowment: The resources that a country possesses, including land, labour, capital and entrepreneurship.
Markets: Efficient organisational structures for economic activity, in which households and companies freely choose to allocate their resources.
Opportunity cost: What is given up produce a unit of a good, measured in units of another good.
Relative advantage: The advantage held by a person who has a lower cost