International

Business

Comparative Advantage model of

Trade theory

Jasmeet
Singh
 Comparative
Advantage
Ability to produce at opportunity cost

Absolute
Advantage
Ability to produce at resources another country

Opportunity
Cost
#the value of the next best alternative foregone as the result of making a decision

OC = Sacrifice Gain
Gain Sacrifice

#
 Y Y
Jute India Jute Bangladesh
1 8
0

A1 A2
5 4

4 X 2 4 X
8
Sugar Sugar
Oppt. Cost = Sacrifice /Gain or X/Y or Y/X (easier way)
So to grow 10 tones of Jute, India have to give up 8 tones of Sugar thus 10/8 =
5/4 (point A1) and to grow8 tones of Jute, Bangladesh have to give up 4 tones
Of Sugar thus 8/4=4/2 (point A2).
Values are in
 Y Y
Jute India Jute Bangladesh
1 8
0

A1 A2
5
Thank you 4

4 X 2 4 X
8
Sugar Sugar
Oppt. Cost = Sacrifice /Gain or X/Y or Y/X (easier way)
So to grow 10 tones of Jute, India have to give up 8 tones of Sugar thus 10/8 =
5/4 (point A1) and to grow8 tones of Jute, Bangladesh have to give up 4 tones
Of Sugar thus 8/4=4/2 (point A2).
Values are in