According to Adam Smith 1776) in…... a country has an absolute advantage in producing the product when it is more efficient in making that product than any other country. If two countries specialise in producing different products and trade amongst themselves, both these countries will have more of both products available to them for consumption (in which each has an absolute advantage) 2.2. Neoclassical Trade theory This is also known as Comparative Advantage. (David Ricardo1817) stated that if one country has an absolute advantage in producing two products over another country, trading with that other country will still yield more output for both countries than if the more efficient producer did everything for themselves. The country with
1. 2. INTERNATIONAL TRADE THEORIES 2.1. Absolute Advantage According to Adam Smith 1776) in….., a country has an absolute advantage in the production of a product when it is more efficient than any other country in producing it. If two countries specialize in production of different products (in which each has an absolute advantage) and trade with each other, both countries will have more of both products available to them for consumption. 2.2.
Comparative advantage is used when considering the capacity to produce certain goods or services at a lower opportunity than another producer. On the other hand, absolute advantage is the capacity to produce goods or services when compared to other producers but at the same resources. The bottom line is that a country has an absolute advantage even when it does not have a comparative advantage. Comparative and Absolute Advantage in International Trade U.S.A The U.S. is one of the advanced economies in the world and a mass producer of different products and services which is facilitated by its vast resources. The international flow of resources and especially technological power coupled with financial capacity places the U.S. at an advantage over other producers.
1) What are the main macroeconomic aims of government policy? 1. to achieve low and stable inflation (price stability) 2. to maintain a high level of employment and low level of unemployment 3. to encourage economic growth 4. to encourage trade and secure a favourable balance of payments There are other objectives which are increasingly becoming important for governments: 5. Equitable distribution of income and wealth – a fair share of the national ‘cake’, more equitable than would be in the case of an entirely free market. 6. Increasing Productivity – more output per unit of labour per hour.
All this leads to a smaller workforce (DJC’s 94 vs. ACC’s 396). DJC could easily replicate this US if it chooses to relocate. The product design strategy of DJC was more oriented towards making the operations more streamlined and reliable. It believed that efficient manufacturing was the basis of its competitive strategy. This is in contrast to the batch production process followed by ACC which accommodated greater customer flexibility but at the cost of efficiency with some product lines being as long as 1.5 to 2 days 4.
If the change in quantity demanded is greater the change in price, the good is price elastic in nature. If the change in quantity demanded is lesser than the change in price, the good is price inelastic in nature. It is measured by the formula:- PED= (%of change in good X demanded)/ (%of change in price of good X) Price Elastic products include goods which have a large number of subsidies in the market, giving the customer more power to choose any firm based on the different prices. Price Inelastic products are goods which are unique in nature and are generally produced by very few firms. Customers don’t have much power and are compelled to buy in the give price.
(International Financial Mgmt. U1, 2015) For example, if Nation X able to produce a certain good at a lower cost or in an efficiency way or maybe both than Nation Y, as a result, Nation X has an absolute advantage and also able to emphasis more on producing a good. Equivalently, if Nation Y is more efficiency in producing another good at a lower cost, it is able to focus more on producing a good as well. By the way of emphasizing, their labor force is able to become more experienced and expert to undertake the same jobs by the reason of it could help a country or a nation to emerge in a better and efficiency way. For that reason, a country will increase their emphasizing methods in order to have more incentive to produce a product in an efficiency way.
A high net profit margin ratio means DiGi.Com Berhad obtaining lower expenditures or costs involved in executing sales activities. Moreover, refer to figure 2.3, return on asset ratio on 2010 to 2014 shows positive value, except 2012 was slightly lower value with 79.66 per cent. Normally, a higher return on asset ratio means effective management’s decision to generate profit regardless of resources. Besides, return on owner’s equity is show positive value, which means the success of business in generating profit, especially in 2014 with 301.54 per cent. In overall, DiGi.Com Berhad was in stable position of probability ratios and the company was able to generate profits within a specified
Preserve cost competitiveness in your domestic market and increase efficiency – Because of global competition, the manufacturers in a country try to produce superior quality goods and at the least possible cost. This upsurges the efficiency and benefits to the customers all over the world. 3. Develops the domestic competitiveness – exporting or importing your products develops your competitiveness in local markets. If you can manage to get imported goods at a lower prices than those you get from domestic markets, then unquestionably you will receive additional profits that will improve your competence
a country has comparative advantage in a good if has a lower opportunity cost of producing the good than an-other country. Countries are expected to export goods for which their autarky (no trade) relative prices are lower than other countries. Countries gain from trade when they have different autarky relative prices of goods David Ricardo: Principles of Political Economy (1817) Extends free trade argument Efficiency of resource utilization leads to more productivity Should import even if country is more efficient in the product’s production than country from which it is buying. Look to see how much more efficient. If only comparatively efficient, than import.