Read the article titled "Comparative Advantage." Explain what comparative advantage is and how it relates to opportunity cost. How do these principles explain why Americans have exported customer service operations to India?
Answers
Answer:what comparative advantage is?
Comparative advantage is an economic term that refers to an economy's ability to produce goods and services at a lower opportunity cost than that of trade partners. A comparative advantage gives a company the ability to sell goods and services at a lower price than its competitors and realize stronger sales margins
.how it relates to opportunity cost.?
Comparative advantage is when a country produces a good or service for a lower opportunity cost than other countries. Opportunity cost measures a trade-off.
How do these principles explain why Americans have exported customer service operations to India?
India's call centers. U.S. companies buy this service because it is cheaper than locating the call center in America. Indian call centers aren't better than U.S. call centers. Their workers don't always speak English very clearly. But they provide the service cheaply enough to make the tradeoff worth it.
Explanation:
What is opportunity cost?
Opportunity costs represent the benefits an individual, investor or business misses out on when choosing one alternative over another. While financial reports do not show opportunity cost, business owners can use it to make educated decisions when they have multiple options before them. Bottlenecks are often a cause of opportunity costs.
Opportunity Cost=FO−CO
where:
FO=Return on best foregone option
CO=Return on chosen option
Nations mostly base their decisions on what to import or export on the concept of comparative advantage. This states:
A country may have an absolute or competitive advantage over another. But, it often chooses to specialize production on a good or service which it can make most efficiently, relative to its trading partners.
A nation with comparative advantage channels its capital, labor, and natural resources on production requiring lower opportunity costs and higher profit margins.
Trade protectionism shields inefficient industries. It allows the squandering of resources on uncompetitive production. This goes against the grain of the comparative advantage concept.
David Ricardo, an 18th-century economist, developed this concept. He wanted to end tariffs on wheat importations to England.
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