How is a nation’s comparative advantage related to the concept of opportunity cost?
The economist David Ricardo showed the link between comparative advantage and opportunity cost. The opportunity cost of producing a good/service “A” is the value of goods/services that are not produced because resources are used instead for “A.” The notion of opportunity cost plays a crucial part in ensuring that scarce resources are used efficiently. In the realm of international trade, Ricardo stated that a nation will export those goods and services that it can produce at a low opportunity cost and import those goods and services that it would otherwise produce at a high opportunity cost. Ricardo illustrated this with the trade between England and Portugal in wine and cloth. Ricardo stated that this was the principle of comparative advantage. 2. Distinguish between the difference between debt and equity capital as productive resources. In short, debt capital is a loan (e.g., bond) to a firm. Equity capital is an investment (e.g., stock) in a firm. While debt capital implies a guaran
