Absolute Advantage Economics Help

Question: Disuss about the Absolute Advantage Economics Help. Answer: Introduction: The modern economy is a complex system. Essentially, its job is to allocate scarce resources and distribute output among a large number of sectors. For this reason, economic models have become essential tools in the modern economy. Primarily, an economic model is a simplified representation of the economy that yields hypothesis about economic variables (Ouiliaris, 2011). Today, governments rely on them to conduct simulations on various economic scenarios and determine how the economy would react to various structural and policy changes. In addition, they help in making predictions and forecasts about future conditions and performance of the economy based on historical and empirical data (Ouiliaris, 2011). Most importantly, economic models assist in making decisions about the production of goods and services in the economy and conducting international trade. Thus, for this reason, economic models are essential tools in the modern economy, and the government should not ignore their pre dictions. First and foremost, economic models are a key component in regulatory decision making. Often, their concepts are utilized by agents to determine the level of production within the country. More specifically, the Production Possibility Frontier (PPF) hypothesis is applied by the government to determine the various combinations of products that can be manufactured within the country optimally (Beggs, 2014). Principally, the PPF is a curve depicting all the maximum output possibilities for two commodities that can be produced within a nation given the available set of resources and factor inputs. In this regard, agents rely on this concept to determine the optimal mix of products that be produced within the country efficiently (PPF, n.d.). As such, producing within the PPF curve depicts efficiency while production below the curve reflects inefficacy. Thus, this way, the government can ensure optimal productivity within the country. Besides that, economic models are important decision-making tools in matters pertaining to local and international trade. Today, the government utilizes the concept of comparative advantage and absolute advantage to decide the type of commodities that the country can trade in the international market. Typically, absolute advantage refers to the condition where a country can produce a greater quality and quantity of a commodity than its competitors using the same set of resources (Beggs, 2014). Thus, using this idea, the government may decide on which products the country can produce more efficiently than its trading partners. Although it is important for the government to establish the nations absolute advantage, it does not necessarily mean that it should produce that product. Instead, afterward, economic agents apply the concept of comparative advantage to determine the product that the economy should specialize in producing to benefit more from international trade. Basically, a comparative advantage exists when a state can produce products at a lower opportunity cost than others. Thus, using this notion, the government can determine those products that the country has a comparative advantage and specialize in their production (Comparative Advantage, n.d.). By doing so, it can produce the commodity more efficiently, thereby benefitting more from international trade than it would have if it had not specialized in the production of that commodity (Pettinger, 2012.). In this regard, it is essential to note that the predictions relayed by the comparative and absolute advantage hypotheses help the economy to benefit more from international trade. In addition to this, economic models provide useful information pertaining to the behavior of households, firms and the government. More specifically, the standard model of demand and supply helps in explaining and analyzing prices and quantities of products that are traded within an economy. By using the models equations, the government can determine the level of demand and supply in the economy as well as the equilibrium quantities and price. This way, it can set prices at levels that do not adversely affects both demand and supply. Hence, all in all, economic models play a significant role in modern economics. Thus, their predictions should be taken into consideration and be implemented by the government to obtain economic efficiency. The price elasticity of demand is an essential tool for determining consumer behavior. Typically, PED relates to the consumer's reaction to changes in the price of a commodity. Characteristically, when the price of a product increases, its demand drops, and vice versa (Moffatt, 2016). Regardless, the degree of responsiveness to fluctuations in the price of the product relies on whether it is an essential or luxury good. As a whole, essential services and commodities have a relatively inelastic PED. Specifically, a unit change in the price of a basic product results in a less than proportionate change in the demand for the product (Russo, et al., 2013). Suppose the price of corn increases by 30 percent. In response to this, its demand decreases by 20 percent. The PED for corn will be: The magnitude of responsiveness of consumer demand for corn following a change in its price is 0.667. Mainly, this means that when the price of corn increases by one unit, its demand only decreases by 0.667 units. For this reason, the demand for corn is relatively inelastic. Predominantly, luxury goods have a relatively elastic demand. Thus, a small change in the price of the product brings about a substantial change in its demand. Suppose the price of a car rises by 10 percent. In response, its demand decreases by 20 percent. In this case, the magnitude associated with changes in the price of a car is 2. Hence, a unit change in the price of a car results in a change in its demand by two units. Therefore, the car has a relatively elastic demand. Notably, this type of elasticity seldom exists in the real world. Nonetheless, it occurs when a unit change in the price of a product brings about a proportionate change in its demand. In this example, the magnitude of responsiveness is 1. Thus, a unit change in the price of the product results in a unit change in the demand for the product. Markedly, this product has a unitary elasticity of demand. References Beggs, J. (2014). Absolute and Comparative Advantage. ThoughtCo.com. Retrieved from https://www.thoughtco.com/absolute-and-comparative-advantage-1146792. Comparative Advantage. Library of Economics and Liberty. Retrieved from https://www.econlib.org/library/Topics/Details/comparativeadvantage.html. Khan, S. Price elasticity of demand. Khan Academy. Retrieved from https://www.khanacademy.org/economics-finance-domain/microeconomics/elasticity-tutorial/price-elasticity-tutorial/v/price-elasticity-of-demand Moffatt, M. (2016). Price Elasticity of Demand. ThoughtCo.com. Retrieved from https://www.thoughtco.com/price-elasticity-of-demand-overview-1146254. Ouliaris, S. (2011). What Are Economic Models? International Monetary Fund. Retrieved from https://www.imf.org/external/pubs/ft/fandd/2011/06/basics.htm. Pettinger, T. Absolute Advantage. Economics Help. Retrieved from https://www.economicshelp.org/blog/glossary/absolute-advantage/. Production Possibility Frontiers. Economics Online. Retrieved from https://economicsonline.co.uk/Competitive_markets/Production_possibility_frontiers.html Russo, C., Green, R., Howitt, R. (2013). Estimation of Supply and Demand Elasticities of California Commodities. Department of Agricultural and Resource Economics University of California, Davis. Retrieved from https://www.cdfa.ca.gov/files/pdf/DemandSupplyElasticityMajorCACrops.pdf.