What is the difference between absolute advantage and comparative advantage?

Question: - What is the difference between absolute advantage and comparative advantage?

Answer: - The term absolute advantage emerges when considering multiple products. If A has an economic advantage against B at producing X, and A has an economic advantage against B at producing Y, then we say that A has an absolute advantage against B with respect to products X and Y. Notice that a claim such as “India has an absolute economic advantage against the US” is odd for two reasons. Firstly, such an advantage, unqualified, must refer to all goods and services. Since universal empirical claims are notoriously troublesome to prove, this raises a red flag. Secondly, aggregating costs within an industry (for instance, wages paid to workers per shirt produced) has meaning for businessmen in that line of business, while aggregating costs across an entire nation and over all goods is highly problematic, for the same reason that all aggregates of this sort are problematic — the subjective nature of cost. But, this is not the main issue. The main issue is:

The concept of comparative advantage emerges when considering trade. At first glance, there is no reason to think that A, with absolute advantage against B in goods X and Y, would wish to trade either X or Y with B. Another worry is that if B trades in either X or Y with A, he might harm his interests. These initial impressions are completely exploded by considering the nature of trade, and Ricardo’s discovery of the law of comparative advantage. It is not absolute advantage that is relevant when considering the gains to trade — it is comparative advantage.

Comparative advantage, when confined to considering goods X and Y, refers to the relative costs of a marginal unit of X per marginal unit of Y. That is, if A enjoys absolute advantage, he is still in a position such that the cost of foregoing production of enough units of Y to produce a unit of X means that he would be willing to trade X for Y at a ratio that is favorable to his position. The same is true for B, and if these ratios are not equal, then the direct benefits of trade emerge.

Indeed, the only condition for direct benefits of trade is that the substitution ratio for A be different from the substitution ratio for B. When the substitution ratio of X to Y for A is greater than that of B’s, then we say that A has a comparative advantage in X, and at the same time, B has a comparative advantage in Y. It then becomes mutually advantageous for A exclusively to produce X and B exclusively to produce Y — division of labor.

The existence of comparative advantage is always mutual and reciprocal.

While the law of comparative advantage was explicated and the benefits of free trade explained by Ricardo under a certain set of assumptions (mobility of labor, but not of trade) does not imply that the law of comparative advantage depends upon those assumptions — it does not.

Question: - Define Multinational Corporations. How international Marketing is is different from Domestic Marketing?

Answer: - An organization working in several countries but managed from one (home) country. Generally, any corporation or group that originates a quarter of its revenue from operations outside of its home country is known a multinational corporation. Multinational firms occurs because capital is much more mobile than labor. Since cheap labor and raw material inputs are located in other countries, multinational firms establish subsidiaries there. They are often criticized as being runaway corporations.

Economists do not agree as to how multinational or transnational corporations should be defined. Multinational corporations have many dimensions and can be viewed from several perspectives (ownership, management, strategy and structural, etc.)

1.       International marketing is facing a more difficult market situation. Domestic marketing is conducted in this country and so faced parallel structure of the market environment is comparatively simple, which consists of those factors that are more common to companies -- the domestic political, economic, legal, and cultural and so on. However, International marketing is facing a more complex atmosphere; it is a market with multi-level formation. This is because those corporations, who engage in international marketing, will inevitably be subjected to the world market environment. Which requires organizations to face the world market environment, including the world’s political, military, economic, technological and other aspects?

2.       International marketing is facing more fear factors. The opposition between subjective understanding and objective authenticity, attached with the unpredictability of the objective procedure, international marketing faced more uncertainties factors for the organizations .Compared with domestic marketing, it is more complex to make sure the overall demand, purchasers and competitors and more difficult to study and forecast wholesale sector, retail composition, buying behavior in international marketing.

3.        International marketing is facing more different selection of marketing programs Companies in the domestic market, although also need to deal with diverse areas and different programs for different target markets, different strategies, and even the use of different promotions, but the overall program is the same however. the international market is a market composed of different countries .companies in the international marketing, its marketing programs are of variety, Enterprises in different country markets to trade their products, not joined marketing program, and must host country market, different scenarios were developed.

4.        Marketing in international marketing is more difficult besides the difficult surroundings and the uncertain factors, diverse selection programs, international marketing have more dangers and meet more tough competition. The risks are added by the changing international political situation and the vary exchange rate .Competitor's sparkling competitive strategy in price, promotion and products made the international market more and more narrow.

5.       The scope of domestic marketing is narrow and will sooner or later dry up. On the other end, international marketing has never-ending opportunities and scope.

6.        As is obvious, the benefits in domestic marketing are fewer than in international marketing. Furthermore, there is an additional incentive of foreign currency that is essential from the point of view of the home country as well.

7.        Domestic marketing is restricted in the use of technology whereas international marketing allows utilize and sharing of latest technologies.

8.        Domestic marketing has nothing to do with political relations whereas international marketing leads to increase in political relations among countries and increased level of cooperation as a result.

9.        In domestic marketing, there are no barricades but in international marketing, there are many barriers such as cross cultural differences, language, currency, traditions and society.