Comparative advantage examples: Real-World Comparative Advantage Examples of marketing

Comparative advantage is a fundamental economic principle that explains how nations can benefit from specialization and trade. Most of the time, examples are the best way to explain comparative advantage. Here are six examples of comparative advantage to help you understand how it works:

Example 1: A country that makes a lot of oil charges a local chemical company less for their product because it costs less to sell the oil to the company than to ship it to another country. Since the company that makes chemicals pays less for the raw materials they need, they can sell their finished products for less than companies in other countries. This gives them an edge in the business of making chemicals. Because of this, this company has an advantage over other companies that make chemicals.

Example 2:
A US telecommunications company hires customer service reps from India because it is cheaper than opening a new call center in the US. They save money so they can offer cheaper phone and internet services than their competitors. Customers sign up for their internet and phone plans to save money, even though their service may not be the best. In this case, giving a cheaper service is more important than giving a good service. So, this telecommunications company has an advantage over other telecommunications companies in the United States.

Example 3: Each year, Columbia makes 30 million motorcycles and 10 million speed boats. During the same time period, Japan makes 25 million motorcycles and 2.5 million speed boats. Columbia has an absolute advantage in making both motorcycles and speed boats, but its advantage in making speed boats is only relative.

When we look at how well Columbia and Japan make each of these products, we see that Columbia is 1.2 times better at making motorcycles than Japan and 4 times better at making speed boats than Japan. This means that Columbia can make speed boats with a much lower "opportunity cost" than Japan can. This is because Columbia has less to lose by putting more of its resources into making speed boats and less into making motorcycles. Columbia decides to use its resources to make speed boats, while Japan uses its resources to make motorcycles.
Example 4:

Brazil decides to use its natural resources, work force, and money to make cars. Brazil has enough resources to be able to make 30 million cars or 6 million trucks in a year. The United States already uses its natural resources, labor, and money to make cars. On average, it can make 35 million cars or 21 million trucks each year.

In this example, the United States has a clear advantage in making both cars and trucks. However, Brazil has the most to gain from making trucks, since they have a lower opportunity cost there than the United States does. Brazil could use this information to put their money into making trucks instead of cars and leave car production to the US.

Example 5: In Puerto Rico, ten bottles of wine or five pieces of cloth can be made in one hour of work. In France, 20 bottles of wine or 20 pieces of cloth can be made in one hour of work. France has the absolute advantage when it comes to making both wine and cloth, but Puerto Rico has the comparative advantage when it comes to making wine. This is because Puerto Rico has a lower opportunity cost than France if it puts more of its resources into making wine and less into making clothes.

Example 6:

When it comes to sports, a famous baseball player has an edge over the average person. She has won a lot of awards for baseball, and many people think she is one of the best players in the world. The baseball player is also a very good musician, though. She is both an athlete and a musician, so she has to decide what she wants to do more of. If she didn't, she would have to be less good at both.

She looks at the odds and decides that staying in baseball may give her a better return on investment than going into music because it has a lower opportunity cost. But a young man who is average at both music and baseball might decide to go into music instead of baseball and spend less time getting better at baseball. In this case, the young man who wants to be a musician has much less to give up than the baseball player. This gives him an advantage over the baseball player in this area.

Copywriter: Kamran Tagiyev
Voiceover author: Jeremy G.
Animation author: Asad Asadzadeh
Sound editor: Mahluga Taghiyeva
Project manager: Kamran Tagiyev

[keshabsubedi]

Hello from Kathmandu, Nepal.
Very good presentation, Sir