advantage occurs when a country has a cost advantage in a good over another producing country.
Question
Advantage Overview
An advantage occurs when a country has a cost advantage in a good over another producing country.
Solution
The statement you provided seems to be incomplete. However, it appears to be referring to 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 price than its competitors and realize stronger sales margins.
Here are the steps to understand it:
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Two countries (let's say Country A and Country B) can produce the same goods, but each country has a different production cost for the same goods.
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Country A can produce Good 1 at a lower cost than Country B, while Country B can produce Good 2 at a lower cost than Country A.
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Instead of both countries producing both goods, they can save costs by specializing in producing the good that they have a comparative advantage in.
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Country A should specialize in producing Good 1 and Country B should specialize in producing Good 2.
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Then, they can trade the goods they produce with each other. This way, both countries can have both goods at a lower overall cost.
This concept is a fundamental concept in international trade theory.
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Explain the benefits of free trade as suggested by the principle of comparative advantage
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