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Principles of Economics - Assignment

Added on - 27 May 2021

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Running head: PRINCIPLES OF ECONOMICSPrinciples of economicsName of the studentName of the universityAuthor Note
1PRINCIPLES OF ECONOMICSTable of ContentsAnswer 1:...................................................................................................................................2i).............................................................................................................................................2ii)............................................................................................................................................3Answer 2:...................................................................................................................................3i).............................................................................................................................................3ii)............................................................................................................................................4iii)...........................................................................................................................................5Answer 3:...................................................................................................................................6i).............................................................................................................................................6ii)............................................................................................................................................6References:.................................................................................................................................8
2PRINCIPLES OF ECONOMICSAnswer 1:i)Absolute advantage:According to the Adam smith, if a country, company or individual can produce anyparticular product at a lower cost per unit compare to other entity with same amount of inputsthan the first one has absolute advantage (Meihami and Meihami 2014).Suppose, Merrie and Kate, two sisters, are students. Merry can solve 10 sums in 1hour while Kate can solve only 6 sums within this time. On the other side, Merrie can read 5pages of any book within 1 hour while Kate can read 7 pages of the same book within thistime. Hence, Merrie has absolute advantage in both situations compare to Kate.Comparative advantage:Ricardo has developed the concept of comparative advantage. According to him, acountry, company or individual has comparative advantage to produce any product whenopportunity cost is low compare to the other entity (Levchenko and Zhang 2016).Comparative advantage can be described with the help of above example.Sums per hourReading per hourMerrie106kate57Opportunity cost of Merrie for doing sum is : 6/12 = 0.5 not reading booksOpportunity cost of Kate for doing sum is: 7/5= 1.4 not reading booksOpportunity cost of Merrie for reading book is : 12/6 = 2 not doing sumsOpportunity cost of Kate for reading books is: 5/7= 0.71 not doing sumsThus, Merrie has comparative advantage for doing sums and Kate has comparative advantagefor reading books within 1 hour.
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