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Absolute and Comparative Advantage Differences

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Illustrate the principles of absolute and comparative advantage by using two nations in a hypothetical investment scenario.

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The answer to this problem explains the difference between absolute advantage and comparative advantage. The references related to the answer are also included.

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We consider two countries A and B in a hypothetical investment scenario. We first consider absolute advantage. Country A can produce 5 tons of wheat every month using 3 employees. Country B can produce 8 tons of wheat every month using 3 employees. If we assume that the employees of both the countries are paid equally, Country B has an absolute advantage over Country A in producing wheat every month. The principle of absolute advantage is that it refers to the ability of an ...

Solution provided by:
Hatim Baxamusa, MBA
Education
  • BSc , University of Calcutta
  • MBA, Eastern Institute for Integrated Learning in Management
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