GMS 724 Study Guide - Midterm Guide: Absolute Advantage, Comparative Advantage
11 Nov 2018
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If the combined coffee production is unchanged from the time before trade, costa. Rica could use all its resources to produce coffee, yielding 10 tons: the united states could produce the remaining five tons of coffee by using 25 units, with the remaining 75 u. s. units being used to produce. Theories of specialization: some assumptions and limitations: both absolute and comparative advantage theories are based on increasing output and trade through specialization, however, these theories make assumptions, some of which are not always valid. Full employment: the physician/administrator analogy we used earlier assumed that the physician could stay busy full time practicing medicine. If he cannot, he may perform administrative work while still maximizing earnings from serving as a physician: the theories of absolute and comparative advantage both assume that resources are fully employed. When countries have many unemployed or unused resources, they may seek to restrict imports to employ or use idle resources.
