Reasons for Trade: Absolute & Comparative Advantage
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Transcript of Reasons for Trade: Absolute & Comparative Advantage
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Reasons for Trade: Absolute & Comparative Advantage
![Page 2: Reasons for Trade: Absolute & Comparative Advantage](https://reader036.fdocuments.in/reader036/viewer/2022062321/568134a9550346895d9bb613/html5/thumbnails/2.jpg)
Reasons for Trade: Examples of Absolute and Comparative
Advantage
Table 1: Production of hardware and software products by Utopia and Happyland
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Happyland’s absolute advantage
Table 1: Production of hardware and software products by Utopia and Happyland
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Utopia’s absolute advantage
Table 1: Production of hardware and software products by Utopia and Happyland
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PP
Cs
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Utopia’s comparative advantage
Hardware
Software
Utopia 200 1000
Happyland 100 150
0
1 unit Hardware = 5 units Software
1 unit Hardware = 15 units Software
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Happyland’s comparative advantage
Hardware
Software
Utopia 200 1000
Happyland 100 150
0
1 unit Software = 0.2 units Hardware
1 unit Software = 0.06 units Hardware
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Reasons for T
rade
Before SpecializationA = 100 Hardware and 500 Software
After SpecializationB = 200 Hardware
After Trading 100 Hardware for 900 Software C = 100 Hardware & 900 Software
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Reason for T
radce
Before SpecializationX = 50 Hardware and 750 Software
After SpecializationY = 1500 software
After Trading 750 Software for 83 HardwareZ = 83 Hardware & 750 Software