Question

Explain the Theory of Comparative Advantage and Imperfect Markets Theory. Support with example (if any).

Answer 1

>> Comparative Advantage is exists in imperfect markets. In comparative Advantage Company or Country can produce products or services in lower Oppertunity cost than other companies or countries.

>> It helps organization to specialize in producing particular products or services.

>> Above things can happen in imperfect market as all the markets in the worlds are imprefect as perfect markets are hyppothetical.

>> In this situation in imperfect market buyers and selleres have influence in terms of price

>> This kind of market situation have monopoly, oligopoly , monopolistic competation, monopsonies and oligopsonies.

>> Here organizations are having competation of market shares, barriers of entry ans exit and tough competation to acquire customers.

>> Ex: Us company outsource many services from Indian call centre as they provide service at very cheaper rate so here US company do tradeoff and it is its cost advantages.

>>So here in comperative advantage country or company focus on thier best part and work on that and get economical growth.

>> China have comparative advange in electorinics product due to having higher number of labour and they are cost effective.

>> So ,this theory is based on concept of relativity. A company or country which is relatively better in producing any product or services, should focus on that particulars that will lead to effectivity and efficiency for that organization.