Comparative Advantage and Comparative Disadvantage Mean Opportunity

Overview and Insights

Comparative advantage is simply the country’s, firm’s, or individual’s ability to produce something at a lower opportunity cost (less resources) than others. Understanding the concept of comparative advantage in the global economy helps us understand why some countries specialize in the production and trade of certain commodities. It also helps us understand the factors that make one country better at producing X commodity than its neighboring countries (or any other country around the world).

Comparative disadvantage is the opposite of comparative advantage, which is a situation where a country, firm, or individual produces a good or a service at a higher opportunity cost (using more resources) than others.

In general, countries have comparative advantage in producing commodities that use their abundant resources. Resources such as climate, land, natural resources (minerals, oil, fertile soil), quantity and quality of its labor, capital, education, expertise, and geographical location can give a country comparative advantage. Countries will have comparative disadvantage if they produce commodities that use their scarce resources or resources they don’t have a lot of.

Example: China has cheaper price for its labor (not cheap labor) compared to the price of labor in the United States because there are many workers in China (higher supply) than in the United States. Saudi Arabia has an abundance of oil, and oil extracting is cheaper than it is in Kyrgyzstan for example. So, it makes economic sense for Saudi Arabia to specialize in the production of oil.

The structure and diversity of countries’ comparative advantage provide opportunities for international business. Each country has something unique that can make it either a good choice for production (using their abundant resources) or a good source for exporting (selling them what they cannot produce themselves).

Assignment Description

Pick a country and evaluate its comparative advantage and comparative disadvantage. Then based on your findings, determine which of the following is a better business opportunity for a multinational corporation (choose only one).

· To manufacture in that country: State what commodity is best produced there.

· To import finished commodities from that country: State what type of commodities.

· To export commodities to that country: State what could be sold there.

Narration: You are highly encouraged to narrate your PowerPoint slides and add your voice and energy to your presentation.

Slide Number Requirements

Three to six slides, not counting the separate Title slide and the separate References slide.

Content Structure and Requirements

· Title Page (slide)

· Title of the presentation

· Name of the author (your name)

· Email address of the author

· Class name

· Professor’s name

· Date

· Content Structure

· Introduction slide: State the name of the country and the size of its economy, population, its major manufactured commodities, and its top two imported and two exported commodities.

· Data: Roots of Comparative Advantage: Use data, graphs, facts, figures, or statistics to describe the country’s comparative advantage, and also state its comparative disadvantage. State the reason your country has that comparative advantage. Basically, what makes it better at producing what it is producing (or could potentially produce) than other countries?

· Findings and Analysis: State how the country you selected is benefitting from its comparative advantage in the international market.

· Conclusion and Looking Ahead: Managerial Critical Thinking: Opinion: Based on what you have learned and based on your understanding of comparative advantage (and comparative disadvantage) for your selected country, what business approach could a multinational corporation use to benefit from that country’s comparative advantage, comparative disadvantage, and resources?

Reference List

· Use at least two reliable sources to obtain facts, data, news, updates, graphs, and so forth.

· Cite all sources used. The references need to be in APA format.

Use APA ResourcesLinks to an external site. to learn more about how to cite and format resources.

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