International Business
International Business
For this assignment, refer to the tables and answer the questions in one or two paragraphs each. Respond to both parts one and two in the same document.
1. Referring to Table 1, what can be concluded about Spain’s absolute and comparative advantage for both boats and trucks?
Analyzing the given Table 1, Spain seems to have an absolute advantage compared to that of Portugal in both the commodities. This implies that Spain is better at producing both boats and trucks more efficiently than Portugal. Spain will need less input to produce the given level of output.
Spain can use its resources either in producing boats or in producing trucks. In order to produce one boat by using its entire resources, Spain will give up four units of trucks. It is the opportunity cost of utilizing its resources in making boats (Folsom, Gordon & Spanogle, 2009). In the case of producing one truck, Spain must give up producing 3/12 of boats i.e. 0.25 units of boats.
Additionally, for Portugal, it can produce either two boats or six trucks. In order to produce one boat, it needs to sacrifice three trucks. But to produce one truck, Portugal needs to give up 2/6 boats i.e. 0.5 units of the boat.
While comparing the opportunity cost for both the countries to produce either of the commodities, Spain has a comparative advantage in producing trucks. Portugal has a comparative advantage in producing boats. Due to their comparative advantage in boat and truck, the opportunity cost will be low while involving in international trade to get the other commodity.
Spain and Portugal will specialize in one of the commodities, and the cost of the product will also be low as they will be involved in international trade to exchange the commodity that they specialize in.
Referring to Table 2, who has absolute advantage in what good?
While comparing the production of both wine and tables, Italy has an absolute advantage. It is more efficient in producing wines and tables than Greece.
Which country has the comparative advantage on what good?
For Italy, the opportunity cost to produce one unit of wine is 0.2 units of the table, but the opportunity cost to produce a unit of the table is five units of wine. Similarly, for Greece, the opportunity cost to produce a unit of wine is 0.5 units of the table but the cost to produce a unit of the table is two units of wine. While comparing the opportunity costs, it is beneficial for Italy to specialize in wine to have low opportunity cost and Greece must specialize in tables. This leads to a better efficiency and low opportunity cost (Deardorff & Stern, 2011).
Part Two
Essay question: As a student, you are currently, paying $5,000 in tuition annually. You work and decide you want to devote more time to your studies to increase your grade point average (GPA); therefore, you give up your job earning $25,000 annually. You expect that when you graduate you will earn $40,000 annually. It takes you one year to complete your studies.
Explain the concept of opportunity cost.
Opportunity cost refers to the cost associated with an alternative that is forgone as a result of a particular action. It relates to the choices people must make due to the scarcity of the resources. So, every action has an opportunity cost. These costs might not be recorded in accounting statements but play a vital role in decision making (Arora & Nandkumar, 2009).
Regarding business, the opportunity cost would mean an alternative use of capital or profit that could be earned elsewhere. It is not only measured by monetary value but also with output and time. The opportunity cost is widely used in making investments when the risk and return plays a vital role to shareholders and managers of the company.
b. Is it beneficial to quit your job? Why, or why not?
In order to understand the option, one needs to analyze the costs and benefits of the alternative. There is the cost incurred after losing a job. There must also be an analysis of alternatives while taking a decision.
In this case, the opportunity cost will be the annual earning and the tuition cost. The cost will be $30, 000. The earning after graduation will be $40, 000 so this income will cover the cost forgone in the coming three years after graduation. The benefit is higher in this case. The other aspects could be higher chances of promotion.
References
Arora, A., & Nandkumar, A. (2009). Cash-out or flame-out! opportunity cost and entrepreneurial strategy. Cambridge, MA: National Bureau of Economic Research.
Deardorff, A., & Stern, R. (2011). Comparative advantage, growth, and the gains from trade and globalization. New Jersey: World Scientific.
Folsom, R., Gordon, M., & Spanogle, J. (2009). International business transactions in a nutshell. St. Paul, MN: West.
