|INSTRUCTOR DISCUSSION NOTES:
Comparative Advantage Fuels China's Growth
1. Define comparative advantage. Can you apply the concept more locally-say, to yourself and your roommates or friends?
Comparative advantage exists when one country has the ability to produce a good at a lower cost, relative to other goods, compared to another country. Specializing in producing the goods they are best at producing forms a basis for trade and countries tend to produce and export the goods in which they have a comparative advantage. Answers to the personal comparative advantage answer will, of course, vary-but this is a very effective way for students to absorb the sometimes difficult concept of comparative advantage.
2. How does comparative advantage promote economic growth?
By taking advantage of comparative advantage, a country will specialize in producing those goods for which they hold a comparative advantage. They will then trade those relatively cheaply-made goods for other goods and services that their country needs but which can be produced far more cheaply in another country. The ability to export additional amounts of the advantageously-produced good to other countries increases the national output and promotes economic growth, including new infrastructure, new factories, and new jobs.
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