Comparative Advantage Model Of Trade Theory

International Business Comparative Advantage model of Trade theory Jasmeet Singh

Comparative Advantage Ability to produce at

opportunity cost

Absolute Advantage Ability to produce at

resources

another country

Opportunity Cost #the value of the next best alternative foregone as the result of making a decision OC = Sacrifice Gain

#

Gain Sacrifice

Y Jute 1 0

Y India

Jute 8 A1

5

4

Bangladesh

A2

4

8

X Sugar

2

4

X Sugar

Oppt. Cost = Sacrifice /Gain or X/Y or Y/X (easier way) So to grow 10 tones of Jute, India have to give up 8 tones of Sugar thus 10/8 = 5/4 (point A1) and to grow8 tones of Jute, Bangladesh have to give up 4 tones Of Sugar thus 8/4=4/2 (point A2).

Values are in

Y Jute 1 0

Y India

Jute 8 A1

Bangladesh

A2

Thank you

5

4

4

8

X Sugar

2

4

X Sugar

Oppt. Cost = Sacrifice /Gain or X/Y or Y/X (easier way) So to grow 10 tones of Jute, India have to give up 8 tones of Sugar thus 10/8 = 5/4 (point A1) and to grow8 tones of Jute, Bangladesh have to give up 4 tones Of Sugar thus 8/4=4/2 (point A2).

Values are in