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Why does Saudi Arabia have a comparative advantage in producing oil?

Why does Saudi Arabia have a comparative advantage in producing oil?

In Table 19.1, Saudi Arabia has an absolute advantage in the production of oil because it only takes an hour to produce a barrel of oil compared to two hours in the United States. The United States has an absolute advantage in the production of corn.

Which country has the comparative advantage in oil production?

Saudi Arabia
Since Saudi Arabia gives up the least to produce a barrel of oil, (14 < 2 in (Figure)) it has a comparative advantage in oil production.

Is oil a comparative advantage?

For example, countries with plentiful oil resources can generally produce oil inexpensively. Because Saudi Arabia produces oil very cheaply, it holds a comparative advantage in oil, and it exports oil in order to finance its purchases of imports.

Which country has a comparative advantage?

For example Ireland has a comparative advantage in cheese and butter due to climate and a large amount of land suitable for dairy cows. China has a comparative advantage in electronics because it has an abundance of labor.

How do countries know when they have a comparative advantage in the production of a good?

In economic terms, a country has a comparative advantage when it can produce at a lower opportunity cost than that of trade partners. While a country cannot have a comparative advantage in all goods and services, it can have an absolute advantage in producing all goods.

When does trade occur because of comparative advantage?

Trade really occurs because of comparative advantage. Consider an economy that has an absolute advantage in producing a given product, then it ________ have a comparative advantage in producing that same product. A country has a comparative advantage when it can produce a good at a lower opportunity cost than another country.

How is comparative advantage different from absolute advantage?

This is in sharp contrast to absolute advantage because a nation can have a comparative advantage but not actually be more efficient than other countries. The law of comparative advantage was originally introduced by David Ricardo back in 1817. He defined it as a state by which one nation was more efficient at producing a certain good than another.

What does Paul Krugman mean by comparative advantage?

Comparative advantage is an economic term that describes and explains trade between two countries. Nobel Prize-winning economist Paul Krugman teaches you the economic theories that drive history, policy, and help explain the world around you.

Understanding opportunity cost is essential to understanding comparative advantage. Opportunity cost is what is lost or missed out on when choosing one possibility over another.