cost. The set of possible production vectors T_i is defined by the size of the countries labor pool L_i and the labor requirements a_x,i,a_y,i as defined in the question q_x,i cdot a_x,i q_y,i cdot a_y,i leq L_i. Let us examine what these properties imply. Absolute Cost Differences :-, adam Smith in his book '. Economic size attracts countries to trade, and economic distance makes trade harder. As aggregate supply equals aggregate demand in equilibrium, relative aggregate supply will equal relative aggregate demand, and as we have just shown it will also equal.
Those services include call centers, banking, and entertainment. Having a comparative advantage in X, Country A sacrifices less of Y than Country. Intro - Classical Theory of International Trade. Since the exchange ratio between X and Y in both countries is the same; none of them will benefit by entering into international trade.
Comparative advantage - Wikipedia
Absolute advantage is anything you do more efficiently than anyone else. Opportunity cost ratios, it is being able to produce goods by using fewer resources, at a lower opportunity cost, that gives countries a comparative advantage. This will make the PPF for each country non-linear and bowed outwards. . The relative aggregate supply is the ratio fracq_xq_y. Example, in order to understand how the concept of comparative advantage might be applied to the real world, we can consider the simple example of two countries producing only two goods - motor cars and commercial trucks. Many countries strive for food security, meaning that even if they should specialise in non-food products, they still prefer to keep a minimum level of food production. The intersection with the relative aggregate supply curve will give yield the equilibrium price ratio and will also yield information about the production of individual countries.