Question

What does it mean to say that country A has a comparative advantage in the production of computers?

Short answer

To say that country A has a comparative advantage in the production of computers means that country A can produce computers more efficiently (at a lower opportunity cost) compared to other countries. This could be due to various factors like better technology, more skilled labor, etc. As a result, country A would be able to produce and sell computers more efficiently and at lower costs, thereby increasing its market share in the global computer industry.

Step-by-step solution

Understand the concept of Comparative Advantage

Comparative advantage is an economic term that refers to an economy's ability to produce goods and services at a lower opportunity cost than that of trade partners. A comparative advantage gives a company the ability to sell goods and services at a lower cost than its competitors and realize stronger sales margins.

Apply the concept to Country A

When it's said that country A has a comparative advantage in the production of computers, it implies that country A can produce computers at a lower opportunity cost compared to other countries. This might be due to various reasons such as advanced technology, abundance of skilled labour or availability of resources.

Explain the effect of this advantage

With a comparative advantage in producing computers, country A would be able to produce and sell computers more efficiently, and at a lower cost relative to other countries. This enables Country A to sell computers at a lower price, boosting its sales and increasing the country's share in the global market for computers.

Key concepts

Opportunity Cost

Opportunity Cost is a fundamental concept in economics that measures the cost of choosing one option over another. It is all about what you give up to obtain something else. Say, you have two options for using your resources: A and B. If you choose A, the opportunity cost is what you would have gained from choosing B.
For instance, when Country A focuses on producing computers instead of another product, it is the value of that 'other product' which it could not produce, that makes up the opportunity cost.
Understanding opportunity cost helps countries decide where to allocate resources and how to focus their efforts effectively.

• It helps identify trade-offs, making economies more efficient.
• It guides decision-making to maximize resource utilization.
• It evaluates the benefits of specialized production based on available resources.

Reducing opportunity costs allows a country to produce goods more efficiently, thereby deriving a comparative advantage in those goods.

Global Market

The Global Market refers to the international exchange of goods and services. It acts like a big network connecting different countries through trading activities. When countries engage in the global market, they can sell what they produce efficiently and buy what they don't produce as well.
For Country A, having a comparative advantage in computers means it can enter the global market highly competitive. This ability allows Country A to trade with other nations, exchanging computers for goods they lack or can't produce efficiently. The global market offers several benefits:

• Access to a broader customer base, increasing potential sales.
• Exchange of technology and innovation between countries.
• Promotes economic growth and job creation.

Participating in the global market enables countries to enjoy a variety of goods and services, fostering economic collaboration and development.

Economic Theory

Economic Theory comprises a wide range of principles that explain how economies work. It's like a framework that economists use to understand production and consumption patterns, market forces, and economic behaviors.
Comparative advantage is a key principle within economic theory. It guides countries and companies on how they can benefit from focusing on their production strengths.

• It seeks to optimize economic activities, maximizing resource use.
• It explains how specialization and trade can lead to mutual benefits among countries.
• Serves as a roadmap for policy-making, aiming at economic efficiency.

By applying economic theory, countries like Country A can strategically position themselves in the global arena, leading to prosperity through smarter trade and investment decisions.