Comparative advantage is defined as the capability of a country to produce a particular product or service at a reduced opportunity cost when compared to another country. In other words, the cost of production in one country is lower, and this allows it to make products at a lower cost when compared to another economy (Clifford, 2018). However, this does not mean that the specific country produces at a greater quality or volume.
On the other hand, absolute advantage means who can produce more while using fewer resources. In this case, when comparing two countries, it is clear what a country can do when compared to another country. For instance, country A might produce 15 cruise ships for every 5 fighter jets, while country B produces 9 cruise ships for every 3 fighter jets. In this case, country B has a comparative advantage over country A in producing fighter jets, and they should specialize in this. Both concepts are not more important than the other since one concept involves the opportunity cost while the other involves the ability to produce a product or service.
The opportunity cost for producing one car in Japan is three cars for one helicopter. The cost for producing one helicopter is 3 cars. On the other hand, the opportunity cost for making one car in Germany is ¼ helicopters. However, it costs 1 helicopter to make 4 cars. In this case, Japan has a comparative advantage in making cars, while Germany has a comparative advantage in making helicopters. The terms of trade that would benefit both countries are by figuring out the country with the absolute advantage and establishing an import quota. In this case, Germany should specialize in making helicopters since it has a lower opportunity cost, while Japan can specialize in making cars. Both countries need an import quota, whereby Japan limits the number of vehicles imported from Germany while Germany limits the number of helicopters imported from Japan.
To conclude, the name of the presenter is Jacob Clifford. The video was informative and provided good insights about comparative and absolute advantages. These terms are essential when determining terms of trade between countries.
References
Clifford, J. (2018). Comparative Advantage Practice. YouTube. Web.