Question

explain scarcity, opportunity cost, consumer goods, comparative advantage and absolute advantage and the relationship between them.

Answer 1

We first define each of them then i tell you the relationship between them

SCARCITY :Scarcity refers to resources being finite and limited. Scarcity means we have to decide how and what to produce from these limited resources.

OPPORTUNITY COST : Opportunity cost is the next best alternative foregone .

CONSUMER GOOD : This includes all goods intended for final consumption. They include consumer durables and consumer non-durables – perishable items like food and drink.

COMPARATIVE ADVANTAGE : Comparative advantage occurs when one country can produce a good or service at a lower opportunity cost than another. This means a country can produce a good relatively cheaper than other countries

The theory of comparative advantage states that if countries specialise in producing goods where they have a lower opportunity cost – then there will be an increase in economic welfare.

ABSOLUTE ADVANTAGE :Absolute advantage means that an economy can produce a greater total of goods for the same quantity of inputs.Absolute advantage means that fewer resources are needed to produce the same amount of goods and there will be lower costs than other economies.

as we know resources are limited ( scare) for example we have limited land then we have to decided wheater to use these land for agriculture productivity or setup a factory which involves the uses of opportunity cost to decided wheater agriculture productivity or factory gives more profit (It means there is a opportunity cost involved in making economic decisions). Now suppose that opportunity cost of setup factory higher and we decided to setup factory on these land . Then the next think we have to decided what to produce ( as you know there consumer non durable good( which daily necessities ) and durable good which involves luxury good.Comparative advantage is concerned with producing at a lower opportunity cost (ie. relatively better at producing), for example in our country we produce wheat and sugar and foreign country also produce same good and the opportunity cost of producing wheat is lower for our country and opportunity cost of producing sugar lower in foreign country as a result there is trade specialization take place and our production possibility curve is at efficient level and we can utilize scared resources efficiently . absolute advantage is also related yo these as fewet resources are required to produce good as compared to other country.