Answers

Part One

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According to Daniels, Radebaugh, & Sullivan (2015), the theory of comparative advantage explains the gains of companies and individuals, which are derived from their advantageous position. Advantages may be caused by various factors, such as technological progress, availability of natural resources, and so on. Thus, comparative advantage appears when one individual, country or company is able to produce a good or service at a lower relative opportunity cost compared to competitors.

Question 1

Absolute advantage stands for the ability of a country, an individual or a company to produce greater numbers of products while using smaller amounts of resources. Thus, from the first table, it is possible to conclude that Spain possesses comparative advantage in the production of both boats and trucks and absolute advantage in the production of trucks over its competitor, in this case Portugal.

Question 2

As for Greece and Italy, obviously, Italy possesses absolute advantage in producing wine. What concerns comparative advantage for Italy and Greece, Italy definitely possesses comparative advantage in the production of both wine and tables, while Greece has no comparative advantage over Italy.

Part Two

Opportunity cost is an important concept in the field of microeconomic. It stands for the cost, which an agent pays indirectly by not taking advantage of an alternative option that is available prior to making a choice. For instance, if one had to make a choice between two or more options, out of which one would have to choose a single alternative, the opportunity cost would be his/her potential loss. This loss originates from the agent choosing not to take advantage of another opportunity, which could be enjoyed by having a different preference. In other words, let us imagine that an artist could go to Paris on a particular day and make $10000 thousand dollars there, or he could go to Moscow and earn $8000, or, alternatively, he may go to Beijing and earn $15000. By making a choice in favor of Beijing, where he would make most income, the artist would have to pay an opportunity cost of not taking the advantage of the second best option and making 10 thousand Dollars.

Certainly, this example is very rough, because when making his decision, the artist would certainly take into consideration various other costs. His expenditures would include travel expenses, rentals, and other fees. Such expenses would certainly heavily depend on the distance to the city, from which he would have to travel to one of his optional destinations, and the next destination he would have to travel to. The number of people and the amount of luggage, which he would have to bring, would also affect his final selection.

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An even brighter example is the opportunity of giving up ones job for the sake of improving an overall grade. If a person quits his/her job, as suggested by the example, he/she will attempt to improve the grades at the university. Thus, such person loses $25000 yearly in salary, while, at the beginning, he/she not earning anything. This situation will last for a year. However, it is important to note that quitting the job does not automatically guarantee better grades. It may very well be that the student was studying at his/her personal limit already, and the time he/she liberates by quitting the job may not necessarily improve the results. Although, even if the outcome is successful, there is no way to predict with a significant degree of certainty that the improved grades will increase the graduates chances of getting the job which earns $40000. Thus, it is not reasonable to believe that quitting the job is beneficial, at least in terms of finances.

However, if the student believes that quitting the job is a necessary prerequisite of improving his/her academic results, and a better GPA is a requirement for being able to apply for a well-paid job, then the decision of quitting the part-time job will not bring any benefit for the next few years. If the student quits his/her job, he/she will lose $25000 during the first year. The next year he/she will earn $40000. Quite clearly, $25000 he/she would have earned anyway. Meanwhile, the student is still $25000 short as he/she failed to earn them during the year of studies. Moreover, only $15000 ($40000-$25000) of them will be earned back. Thus, within two years he/she will end up losing $10000. Only the third year will bring a benefit of $5000. However, it is reasonable to assume that by remaining loyal to the first employer, a graduate could get a promotion and thus earn more than those $5000. Alternatively, he/she could have gained valuable experience and found a better paying job.

All in all, quitting the job for the sake of potential improvement of grades would not be a beneficial choice, at least in terms of financial income. There are multiple additional factors affecting the decision, such as a necessity to take a loan, which would result in additional expenses during future years. Thus, even the potential income of $5000, which a graduate could have earned after two years of work at a new job, would disappear.

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