The owner mentioned she has the base of the shoes made in another country and wants to have the tops made in other counties as well because it costs less. Which type of advantage does these other countries have that the US doesn't have? (See the descriptions) Your options are Absolute Advantage or Comparative Advantage.

1 answer

In this situation, the owner is looking to produce the tops of the shoes in different countries where it costs less. This indicates that those countries likely have a Comparative Advantage in producing the shoe tops.

Comparative Advantage refers to the ability of a country to produce a specific good or service at a lower opportunity cost than another country. This means that, even if one country is less efficient in absolute terms (i.e., can produce fewer shoes overall), it can still produce certain items (like shoe tops) more efficiently relative to other goods it could produce, making it more cost-effective.

Absolute Advantage, on the other hand, refers to the ability of a party to produce more of a good or service with the same amount of resources compared to others. This isn't necessarily applicable in this case since the owner is specifically interested in cost rather than productivity.

Therefore, the advantage that the other countries have in producing the tops of the shoes is Comparative Advantage.