Economics Terms A-Z
Having the comparative advantage (if, for example, you are a business) means that you can produce a good or service at a relatively lower cost than that of your competitors. Having the comparative advantage means you will be able to sell your goods for a lower cost than your competitors and potentially perform better. (‘Cost’ here refers to opportunity cost, not just monetary cost.) Comparative advantage is often used in reference to nations, where trading with a particular country may not result in the best product being purchased, but its purchase can be made at the lowest opportunity cost.
The theory was initially laid out in its classical form by economist David Ricardo in the 1700s. He argued then that, rather than England producing wine (for which the country didn’t have the correct climate) and Portugal cloth (for which it didn’t have adequate manufacturing capabilities), the two countries should simply stop making these products and trade what they could more easily make with each other at mutual benefit. Comparative advantage differentiates itself from absolute advantage, which says that some countries are able to do things significantly more efficiently than others. However, this doesn’t necessarily offer comparative advantage, as trading opportunity costs must also be taken into account.
Factor markets (or resource markets) are markets for the inputs to production. A producer is typically a seller in the market for a product (supply SG in the graph below) while simultaneously being a buyer in the markets for its factors of production (demand DF below).
A deadweight loss is the irrecoverable reduction in economic efficiency that occurs when a free-market equilibrium is disturbed by a market intervention or other shock to supply and/or demand. In economic theory, free markets are beneficial to society because they allow consumers and producers to exchange goods and services for money and both sides of the market gain at the equilibrium price in terms of consumer surplus and producer surplus. In a simple economy with just one
The Pros and Cons of a Career in Research
Upon completion of a Master's degree or PhD, the big question arises: what next? Although it seems a natural progression to continue with further research, there are many other careers open to academics: in business, in education, or in communication and journalism, for example. So how do you know if research is the right career choice for you? Read on to find out. Browse our job listings for economics opportunities