The model of comparative advantage
Comparative advantage is a model that explains why countries trade. A country has comparative advantage in a good when it gives up less of other goods to produce it than another country does.
Formula
Opportunity Cost of Good A = Units of Good B sacrificed ÷ Units of Good A gained
Real World
Bangladesh has a comparative advantage in garment manufacturing — its opportunity cost of producing clothing is lower than that of Germany, which is why brands like H&M source the vast majority of their clothing there rather than producing it domestically.
Exam Focus
Always calculate opportunity cost ratios explicitly in numerical questions — examiners award marks for showing the comparison, not just stating the conclusion.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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