Comparative Advantage

Definition

- A principal based on the assumption that an area of specialize of goods and service that have the greates advantage or the lowest opportunity cost.

- Each individual will try to concentrade on their own activities business for which his opportunity cost is the lowest.

- By concentrating on those task which are most prodcutive and more can be produce vastly rather thn we try to be self-suffcient.

Sources of Comparative Advantage

- It can be devided into 2 level
(i)Individual level
(ii) National Level

- At the individual level, there is often appearce to be the result of inborn talent. This can be showned from the educational level, experience and training.

- From the national level, the comparative advantage can be deserved from the culture and society.

- The non- economic factor is the use of the english language a high standard of craftmanship.

- Besides that for those who do not have specialization, that are required to work in a long hours and accept the low wages.

- The same logic that leads the individual to specialise and exhange goods and services among themselves also can applied to the countries on specialize and trend among each another.

- While reducing the barriers of intenatinal trade, it will leads to the total increased of total value production and services to the nation. But it can guarentee all the citizen will be benefit from the situation.

- For example, the emerging of the economic growth can exploit the comparative advantage in the production by the unskilled employees.

What are the benefit of trade?

- Economist compare the local current price with other countries. This price prevailing in world market know as the world price.

- When the world price is higher thn the dosmestic price, the domestic economy has a comparative advantage.

- Once free trade is allow, the domestic price will rise up and equal the world price.

How can we increase the trade?

3 way
(i) Expand the volume of trade with developed countries
(ii) Foregin aid-agent/ loans from the goverment of advance nation
(iii) Encourage private capital flows