Absolute Advantage vs Comparative Advantage †MyAssignmenthelp.com

Question: Discuss about the Absolute Advantage vs Comparative Advantage. Answer: Introduction The essay revolves around price elasticity of demand knowledge and its importance to producers. Price elasticity of demand is directly impacted to laws of demand and supply. Further ,theres need to understand the absolute advantage and comparative advantage economic concepts management .In addition, theres need to explore the role of specialization and exchange concepts in comparative and absolute advantage. The concept of price elasticity of demand translates to the responsiveness of production to changes in price. Predominantly, in cases of inelastic demand, price increases thus maximized profits whereas elastic demand for goods and services results in decreased revenue .Regarding supply ,the higher the price of a good the higher the quantity demanded hence increased revenue for producers. Reasons for considering price elasticity of demand when setting the price According to the Demand laws, the higher the price of a commodity or service, the less the quantity of commodity or service will be consumed hence it is important for producers to consider price elasticity of demand to enable them meet their target as producers through fixation of optimum price levels(Hayes,2017).Additionally, through price elasticity of demand ,producers are able to be economically and allocative efficient in the sense that production is based on the market conditions at the time hence no wastage of quantity produced. Moreover, through the price elasticity of demand, producers are able to maximize profits in the sense that when the price of goods and services is high ,theres equally increased production(Quantity supplied)thus increased revenue for the producers(Hayes,2017)Further ,price elasticity of demand helps the producers incur less or avoid losses in the sense that when the price of goods is elastic, producers are able to produce less goods to avoid wastage which would otherwise be incurred without proper market information. Also, marketing strategies are best devised with proper knowledge in price elasticity of demand management that is because goods with high elasticity of demand require more marketing strategies cost as compared to goods with low elasticity of demand(Guo,2017). Noteworthy, the principle of absolute advantage is based on absolute advantage theory which stipulates that production of greater and better quantity of goods using the same resources available to competitors whereas comparative advantage is based on comparative advantage theory which implies lower opportunity in the production of goods than competitors. Typically, specialization isnt vital for comparative advantage but vital for absolute advantage. Whereas comparative advantage is based on opportunity cost, absolute advantage is based on superior capabilities and cost. Additionally, comparative advantage promotes mutual benefits while absolute benefits one party more than the other (Olivia, 2011) Comparative advantage is considered the basis of trade. Absolute advantage deals with productivity. Further, comparative advantage determines specialization (Boundless, 2017) Conclusion This essay explores the importance of considering the price elasticity of demand of goods and services from a producers point of view. Further, it looks at the differences between comparative and absolute advantage from the standpoint of specialization andexchange perspectives .All in all it can be said that laws of demand and supply play a crucial role in production and profit maximization .Lastly, specialization is key for comparative advantage in trade. References Boundless.(2017)Absolute Advantage vs Comparative Advantage.Boundless.Retrieved from https://www.boundless.com/economics/textbooks/boundless-economics-textbook/international-trade-31/introduction-to-international-trade-124/absolute-advantage-versus-comparative-advantage-493-12589/ Guo, V.(2017)Price Elasticity 101:The Necessity and your pricing strategy. Price Intelligently. Retrieved from https://www.priceintelligently.com/blog/bid/154374/price-elasticity-101-the-necessities-and-your-pricing-strategy Hayes, A. (2017) Economics Basics: Supply and Demand management.Investopedia. Retrieved from https://www.investopedia.com/university/economics/economics3.asp Olivia. (2011) Difference between absolute and comparative Advantage. Difference Between. Retrieved from https://www.differencebetween.com/difference-between-absolute-and-vs-comparative-advantage/