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Questions and Answers
What is considered an integrating force that drives companies toward innovation within an industry?
What is considered an integrating force that drives companies toward innovation within an industry?
The writings of key academics have diminished over time regarding the competitiveness of regions.
The writings of key academics have diminished over time regarding the competitiveness of regions.
False
What do regional competitiveness indexes help measure?
What do regional competitiveness indexes help measure?
Local competitiveness
The _____ of regions is increasingly important due to globalization.
The _____ of regions is increasingly important due to globalization.
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Match the following concepts with their associated details:
Match the following concepts with their associated details:
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Which country has a comparative advantage in producing beef?
Which country has a comparative advantage in producing beef?
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The opportunity cost of producing one auto in Brazil is 4/3 autos.
The opportunity cost of producing one auto in Brazil is 4/3 autos.
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What is the law of comparative advantage?
What is the law of comparative advantage?
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A country has a comparative advantage in the production of a commodity which utilizes relatively abundant __________ more intensively.
A country has a comparative advantage in the production of a commodity which utilizes relatively abundant __________ more intensively.
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What can influence a region's comparative advantage?
What can influence a region's comparative advantage?
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What does comparative advantage allow a region to do?
What does comparative advantage allow a region to do?
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Absolute advantage and comparative advantage refer to the same concept.
Absolute advantage and comparative advantage refer to the same concept.
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Match the following factors with their descriptions:
Match the following factors with their descriptions:
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Who formulated the concept of comparative advantage?
Who formulated the concept of comparative advantage?
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Competitive advantage is always defined consistently across industries.
Competitive advantage is always defined consistently across industries.
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Comparative advantage deals with the ability to produce goods and services at a lower __________ cost.
Comparative advantage deals with the ability to produce goods and services at a lower __________ cost.
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Match the following terms with their definitions:
Match the following terms with their definitions:
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Which country has an absolute advantage in the production of corn?
Which country has an absolute advantage in the production of corn?
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Opportunity cost only refers to financial costs.
Opportunity cost only refers to financial costs.
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What is a key element of regional economic development?
What is a key element of regional economic development?
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What represents the benefits an individual misses out on when choosing one alternative over another?
What represents the benefits an individual misses out on when choosing one alternative over another?
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A nation's competitiveness is solely dependent on the size of its market.
A nation's competitiveness is solely dependent on the size of its market.
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What are factor conditions in the context of competitive advantage?
What are factor conditions in the context of competitive advantage?
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The ability to outperform rivals due to unique, high demand, or superior quality products is referred to as __________.
The ability to outperform rivals due to unique, high demand, or superior quality products is referred to as __________.
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Match the factors influencing competitive advantage with their descriptions:
Match the factors influencing competitive advantage with their descriptions:
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Which of the following describes a characteristic of effective demand conditions?
Which of the following describes a characteristic of effective demand conditions?
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Collaborative strategies and resource sharing detract from competitive advantage.
Collaborative strategies and resource sharing detract from competitive advantage.
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Name one factor that influences the competitive advantage of a region.
Name one factor that influences the competitive advantage of a region.
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Which country has an absolute advantage in oil production?
Which country has an absolute advantage in oil production?
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Libya has a comparative advantage in the production of corn.
Libya has a comparative advantage in the production of corn.
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What is the opportunity cost of producing one sweater in France?
What is the opportunity cost of producing one sweater in France?
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The United States has an absolute advantage in the production of _____ .
The United States has an absolute advantage in the production of _____ .
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Match the countries with their absolute advantage:
Match the countries with their absolute advantage:
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What is the opportunity cost of one pound of beef in Brazil?
What is the opportunity cost of one pound of beef in Brazil?
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In Tunisia, it takes more workers to produce both sweaters and wine than in France.
In Tunisia, it takes more workers to produce both sweaters and wine than in France.
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Which country has the comparative advantage in producing autos?
Which country has the comparative advantage in producing autos?
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Study Notes
Introduction
- Regional economic development relies on the movement of goods, services, and people across regions.
- International trade theory explores patterns and characteristics of trade between nations, focusing on comparative and competitive advantage.
Comparative Advantage of a Region
- British economist David Ricardo introduced the concept in the early 19th century.
- Comparative advantage describes an economy's ability to produce goods and services at a lower opportunity cost than trade partners.
- This allows companies or regions to sell goods and services at lower prices, boosting sales.
- Comparative advantage is sometimes confused with absolute advantage.
Absolute Advantage
- Absolute advantage considers the ability of a country, individual, company, or region to efficiently produce a good or service at a lower cost per unit than another entity.
- The focus of absolute advantage is on efficiency, whereas comparative advantage focuses on costs given the opportunity to produce something else.
Example Calculations
- Table 1 shows that Saudi Arabia takes four hours to produce a barrel of oil, compared to seven hours in the US. This gives the Kingdom an absolute advantage in oil production.
- The US takes one hour to produce a bushel of corn, compared to four hours in Saudi Arabia, showing an absolute advantage in corn production
- Example 2 illustrates the calculation of opportunity cost to determine comparative advantage. Libya has a comparative advantage in oil production and Nigeria has a comparative advantage in corn production.
- Example 3 demonstrates absolute and comparative advantage calculation using numerical examples relating to the production of sweaters and wine in France and Tunisia and beef and autos in Brazil and the USA.
Law of Comparative Advantage
- Nations benefit from exporting goods they can produce at lower opportunity costs compared to other nations.
- Importing goods with a higher opportunity cost is equally beneficial.
Factors Influencing Comparative Advantage
- Resource Endowments: Countries leverage abundant natural resources and skilled labor to enhance their comparative advantage.
- Demand Patterns: High demand in domestic and international markets fosters competitive advantage. Satisfying both domestic and global demand is key
- National/International Policies: Policies related to infrastructure, export promotion, education, and R&D influence comparative advantage. International organizations (like the IMF and WTO) also play a role.
- Technological Superiority: Advanced technology allows for higher quality and greater output, leading to a competitive advantage. Economies of scale help lower production costs.
Competitive Advantage of a Region
- Competitive advantage is not universally defined, it often relates to the competitiveness of markets. Lower barriers to entry or a large number of firms enhance industry competitiveness against foreign rivals.
- Competitive advantage can result from lower prices to rival traders and a desire to win.
- Competitive advantage can emanate from unique products with high demand or superior quality.
- Firm success in global markets "creates" national prosperity.
Factors Influencing Competitive Advantage
- Factor Conditions: Specialized skilled labor, scientific institutions, and research create a competitive advantage.
- Demand Conditions: Sophisticated and demanding consumers shape and drive demand trends
- Related and Supporting Industries: Internationally competitive related industries are critical to creating future competitive advantage.
- Firm Strategies, Structure, and Rivalry: Firm managerial/organizational strategies, as well as the challenges presented by competitors, are critical ingredients driving innovation and firm improvement.
Global Perspective
- Regional competitiveness has gained importance.
- Globalization has intensified rivalry between firms, countries, and regions.
- Measuring and promoting local competitiveness leads to the creation of benchmarking indexes and comparisons.
Linking Comparative to Competitive Advantage
- Intra-industry trade among developed countries is influenced by firm-level factors.
- Inter-industry trade between developed and developing nations is driven by country-level factors.
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Description
Explore the fundamentals of international trade theory, focusing on comparative and absolute advantages. Understand how these concepts impact regional economic development and the movement of goods and services. This quiz will clarify the differences and applications of comparative and absolute advantages in trade.
