Question

Suppose Ghana discovers it has lost its comparative advantage in the production of maize. Which of the following could explain the loss of comparative advantage? Check all that apply. [LO 17.1] a. Maize-processing technology developed in Ghana spreads to other maize- producing countries. b. Decline in global demand for maize. c. Immigration of cheap labor into Ghana. d. Growth of low-skill service jobs in Ghana.

Short answer

Options (a) and (d) could explain the loss of comparative advantage.

Step-by-step solution

Understanding Comparative Advantage

Comparative advantage refers to the ability of a country to produce a good at a lower opportunity cost than another country. This results in the country being able to produce certain goods more efficiently.

Analyzing Option (a)

Maize-processing technology spreading from Ghana to other countries implies that Ghana no longer has a unique advantage. Other countries can now process maize equally well or better, contributing to the loss of comparative advantage.

Evaluating Option (b)

A decline in global demand for maize does not directly affect Ghana's comparative advantage. Comparative advantage is about relative efficiency in production, not demand levels, so this option is not applicable.

Examining Option (c)

Immigration of cheap labor into Ghana would likely reduce production costs for maize. This should enhance rather than diminish Ghana's comparative advantage in maize production, so this does not explain the loss.

Considering Option (d)

The growth of low-skill service jobs may cause a shift in resources away from agriculture (including maize production) towards these new job sectors. This can lead to a relative decline in comparative advantage in maize production as resources are reallocated.

Key concepts

Maize Production

Maize production is an essential agricultural activity in many countries, providing a staple food and significant economic contributions. However, factors influencing maize production can vary, affecting a country's output and competitive stance in the global market. Climate conditions, soil quality, and access to technology greatly impact the efficiency and volume of maize production. In Ghana, advanced maize-processing technology initially gave the country a comparative edge in maize production. When such technology becomes widespread, it levels the playing field, diminishing Ghana's unique advantage.

• Technological advancements can enhance production efficiency but may spread to other regions, leveling the global market.
• Resource allocation, such as labor and capital, influences maize production capacity.
• International competition can shift as countries adopt similar technologies, affecting a nation’s relative advantage.

Hence, maintaining a comparative advantage in maize production is multifaceted, relying on a mix of innovation, resources, and strategic deployment.

Opportunity Cost

Opportunity cost is a key economic concept essential in decision-making and resource allocation. It represents the benefits a person or country foregoes by choosing one option over another. In the context of agriculture, such as maize production in Ghana, opportunity cost helps determine the most efficient allocation of resources. For instance, if resources are shifted from maize production to other sectors like low-skill service jobs, the opportunity cost is the forgone profit and efficiency benefits that maize production would have delivered.

• Opportunity cost assesses trade-offs in economic choices.
• It highlights the benefits lost from not selecting the next best alternative.
• Evaluating opportunity costs helps in prioritizing resource allocation to maximize economic gain.

This concept underscores the importance of analyzing potential outcomes when deciding where to allocate resources, which could affect overall productivity and economic strategies.

Economic Efficiency

Economic efficiency refers to the optimal use of resources to achieve the best possible output and utility. It means that an economy or firm is producing at its full potential without wasted resources. In maize production, economic efficiency would imply using land, labor, and technology in a way that maximizes crop yield per unit of input, hence reducing waste and increasing profitability. When Ghana experiences a shift in labor or technology, as in the spread of maize-processing technology or the emergence of low-skill jobs, it impacts economic efficiency by altering how resources are utilized.

• Efficiency involves maximizing outputs from given inputs without resource wastage.
• Adjustments in labor and technology deployment affect efficiency levels.
• Maintaining economic efficiency requires continual innovation and effective resource management.

Striving for economic efficiency ensures that the country's resources are not only used wisely but also in a manner that secures a competitive advantage in the global market.