Certain good?

Question

can you define comparative advantage, and explain how a country gets a comparative advantage in the production of a certain good?

Answer 1

A comparative advantage is situation in which a person or a country can produce a good or service at a lower opportunity cost than another person or country.  

For example:

Country A can produce cars and movies

County B can produce care and movies

Country A can produce 1000 cars/month or 2 movies a month

Country B can produce 2000 cars/month or 2 movies a month

What does country A have to give up to produce a movie....well...500 cars...that's the opportunity cost

What does country B have to give to produce a movie well... 1000 cars.

SO country A has a comparative advantage in producing movies because they have to give up less to produce it.  Country B has comparative advantage in producing cars because the opportunity cost of one good is the inverse of the other.  For country A, the OC of producing a car is 1/500 a movie.  For country B, the OC of producing a car is  1/1000 a movie.  So country B has a CA in producing movies.