What is the law of comparative advantage? According to the law of comparative advantage, what should be the distinguishing chara
cteristics of the goods a nation produces? What should be the distinguishing characteristics of the goods a nation imports? How will international trade influence people's production levels and living standards? Explain.
Its the ability of a nation to produce a good or a service at the lowest opportunity cost.
Explanation:
According to the law of comparative advantage, a nation should produce only a good or a service if the opportunity of cost of producing it is among the lowest among its trade partners. It will give a nation or a company to sell the goods at the lowest possible prices and therefore gathering the maximum economic growth.
This law will allow people to specialize in certain skills therefore reducing the cost of production in the long run, therefore increasing the economic gains. Similarly, a nation should import goods, if the opportunity cost of producing that good is higher than partner nations. Thus, the international trade will allow people to specialize in their areas of expertise and increase their productivity over time. Therefore, the overall global economic output will increase, increasing the people's standards of living.
Inferior goods are items purchased buy a consumer as a result of his limited income such that when that consumer's purchasing power increases, he purchases other commodities in place of the one initially purchased.
Hence the purchase more T-bone steak and less hamburger is an indication that hamburger is an inferior good to the consumer.
Accrual accounting method simply means when revenue or expenses are written down and recorded at the time that the transaction took place and not when payment was gotten.
The revenue that is recognized on the March income statement will be 0. This is because the delivery was in April and none took place in March.
