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Word Count: 478
In the world market countries trade products they wouldnt be able to produce on their own Countries like Cuba specializes in cigar production Japan in electronics and Russia in rocket technology However even if a country has an absolute advantage in producing all goods they still will benefit from trade Many economic factors are involved with trade Among the major factors are opportunity costs comparative advantage specialization and finally trade Opportunity cost is defined as the value of the best alternative forgone when an item or activity is chosen In other words opportunity cost is the cost of choice For example the opportunity cost of producing a car is the time that couldve been used to produce something else say paper For a country country A that has an absolute advantage the ability to produce something using fewer resources than other producers use in producing both cars and paper the opportunity cost of producing say 1 car is the production of 3 tons of paper Thus what product a country chooses to specialize on must be chosen so as to produce as much as possible while suffering as little opportunity cost as possible Which goods the country should specialize on should be monitored by the law of comparative advantage which states that the country with the lowest opportunity cost of producing a particular good should specialize in producing that good By specializing on a certain good a country lowers the opportunity cost of that good by forgoing production of other goods For example Say country A has an absolute advantage in producing cars as well as paper and the opportunity cost of producing 1 car is 3 tons of paper Country B however produces 1 car at an opportunity cost of 6 tons of paper If these two countries specialized according to comparative advantage country A produces 2 cars whilst country B produces 12 tons of paper Therefore country B should
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