Signature Assignment: Challenges of Expansion to a Foreign Location (ATTN:AcademicResearchPro)

Running head: COMPARATIVE & ABSOLUTE ADVANTAGE 0

Learning Team B

Comparative & Absolute Advantage

ECO 561

Gary Wiessner

University of Phoenix

05/24/2017

Analyze measures of economic growth and of comparative and absolute advantage in international trade.

The most common measure of economic growth is the GDP of a country, and rates of unemployment. A country with high GDP and low unemployment rates is growing economically as compared to another one with high GDP, and high unemployment rate. China has the highest population, followed by USA and Germany in this case. This aspect provides the country with ready market for its products, and a source of cheap labor to run its operations in different sectors of the economy (Brugnoli, & Colombo, 2012). The employment rate is an indication into the level in which a country is able to support its population through structured employment systems. Low unemployment rate for China is an indication of economic growth.

Competitive and absolute advantages are the measures of efficiency of producing products in different countries. The size of labor that is used to produce a product in one country is used to compare how efficient different countries are. In this case, if one country would need 10 people and another 5 to accomplish the same task in the same duration, then the former is more efficient than the latter and that provide ground for defining comparative and absolute advantage (Kurtz, & Boone, 2011).

Comparative advantage defines a country’s ability to produce a product at a lower opportunity cost than other countries despite having absolute opportunity within its processes.

Absolute advantage enables a country to use the fewest resources to produce one unit of a product in the market compared to any other country in the dame market. Absolute advantage therefore, measures the efficiency of producing products in one country versus the efficiency of the same in another country.

International market is driven by comparative and absolute advantages that countries participating in it harness to enhance competitiveness of their products. To measure comparative and absolute advantage, the total imports and exports in a market per each country is used to gauge the extent to which a country is enhancing these attributes. A country with more exports to different destinations in international market has absolute advantage over other countries.

Economic indicators of USA, China & Germany

Discuss reasons why the economic growth of the three countries varies. How does international trade influence the strength of the economy worldwide?

Economic growth of the USA, China and Germany varies because of several reasons. The cost of labor is a major reason for the variations in economic growth. China has the highest population in the world. Therefore, it has the largest supply of cheap and affordable labor compared to USA and Germany. Labor supply and technology are complementary features that make substantial difference in economic difference between countries. The other reason is the aspect of superior technology used to support the manufacturing and agricultural activities in these countries (Acemoglu, & Robinson, 2012). The USA is using technology to run the production of corn and that gives the country a comparative advantage over the other countries. The other reason is the management of economic cycles to avoid boom and bust during extreme cases of inflation. The balance of trade in a country is also important in determining the economic growth of a country. If a country is importing more products than it is exporting, then its economic growth will remain inferior to the countries that are exporting more. A country’s economic and fiscal policy has a great influence on the economic growth of a country. Competition for quality in the market forces other countries to specialize in a number of products to remain competent in the international market.

International trade wields massive influence in the strength of different economies across the world. International trade enables countries with absolute advantage to increase its revenues by engaging clients on international platform. A country also benefits through taxation of revenues collected by individuals and companies participating in international trade. Countries with comparative advantage also benefit from international trade by exporting its products with the highest opportunity cost (Mansfield, & Milner, 2012). International trade also informs a country’s trade policy-making process to increase funding in specialty areas of the economy where a country can benefit from absolute of comparative advantage.

The stability of local markets depends on the country’s capacity in international market. A country that has dominance in international market stands greater chance of stabilizing the local markets. Balance between imports and exports in another aspect of international trade that strengthens economic growth. A country that has as much imports as does exports ensures that the national currency is stable and other trade related aspects like currency market become stable too. Trading with other nations without barriers is another advantage of participating in international trade.

USA

Corn & Wheat: The USA has technology driven agricultural systems that enables it to produce more corn and wheat efficiently than other countries. The country’s advanced technology gives the country absolute advantage over other nations.

Automobile: the US has comparative advantage in the manufacture of automobiles

China

Consumer electronics: China has absolute advantage because it produces consumer electronics cheaply and in mass taking advantages of the economies of scale.

Automobile and parts: china manufactures in large scale because it has cheap labor hence are enjoying comparative advantage.

Germany

Automobile and automobile parts: Germany has advanced technology to support its automobile and aviation industries for export. These sectors give the country absolute advantage over other countries.

Aviation sector: Germany still exports helicopters and their parts but has comparative advantage over other countries.

The presence of cheap labor in China limits the USA and Germany from attaining absolute advantage in some of the products they manufacture.

References

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Acemoglu, D., & Robinson, J. A. (2012). Why nations fail: The origins of power, prosperity, and

poverty. London: Profile Books.

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Brugnoli, A., & Colombo, A. (2012). Government, governance and welfare reform:

Structural changes and subsidiarity in Italy and Britain.

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Kurtz, D. L., & Boone, L. E. (2011). Contemporary business. Hoboken, N.J: Wiley.

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Mansfield, E. D., & Milner, H. V. (2012). Votes, vetoes, and the political economy of

international trade agreements. Princeton, N.J: Princeton University Press.

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