Bus 305 Market Behavior

Module 1 - Market Behavior

Giving this course assignment in Module 1, not only has challenged me tremendously but taught me so much.   As I admit that I’m still a little uncomfortable with the subject matter, I do hope that I can learn more to help me understand business in a better light.

Absolute Advantage is said to exist when a country can produce or make a product or goods cheaper than any other country.   Comparative Advantage is said to exist not when comparing the financial cost of two countries to produce goods or product but when comparing the opportunity cost (what does a country have to sacrifice or give up to produce a good or product).

Given the trading scenario featuring the USA and Canada and the production of wheat and corn, it is clear that the USA has the Absolute Advantage in producing both wheat and corn.   When deciding who should produce wheat, the USA only would have to sacrifice ½ of corn production while Canada would have to sacrifice 1 and 3/5 of their corn production for the year.   With the USA only sacrificing ½ of its corn production in a year it is clear that the USA would have the comparative advantage in producing wheat.   When examining the Comparative Advantages for corn, Canada clearly has the Comparative Advantage with sacrificing only 5/8 of its wheat production compared to 2 of the USA’s yearly wheat production.

Depending on how a country allocates its resources, it can have a huge effect on how a country’s Production Possibility Frontier.   With limits in production it’s important to decide what goods are going to be better for a country to produce using the Comparative Advantage method in order to achieve maximum efficiency.   As in our scenario between the USA and Canada it was clear using the Comparative Advantage method that the USA should focus more on Corn while Canada should focus on wheat.   If USA tried to focus of producing wheat and corn at the same time they would not be utilizing their resources efficiently....