Important To Consider Elasticity Of Demand â€Myassignmenthelp.Com

Question: Explain The Difference Between Comparative Advantage An Absolute Advantage? Answer: Introducation While fixing the price of the good the producers keep under consideration a number of things. These things help in determining the price of the good which varies according to the place, time and the nature of the good. Price elasticity is one of the major concepts which are kept in mind while fixing the price of the good. Price elasticity is considered as the responsiveness of demand of the good on the basis of the price of the good i.e. it measures how the demand changes of a particular commodity with change in the price of the good(Morgan, 2014). The producer while fixing the price of the good has to clearly see how the demand of the product changes among the people as the price of the commodity is changed. The elasticity of demand is expressed in percentage and that is percent change in goods demanded divided by percent change in the price of the goods. The elasticity of demand depends on the number of factors like the price of the god, the substitutes available, the availability of raw material, etc. if there are close substitutes available or the goods. If there are close substitutes available for the goods, then the elasticity of demand is considered to be zero as the people tend to shift their demand to the good which costs less. Whereas if there are no close substitutes available, the goods are the luxury goods, of necessity items, then the elasticity is one. Hence, the elasticity plays an important role. The two terms which are used frequently whole producing goods by the producers are the absolute advantage and the comparative advantage. The meaning for both the terms differs a lot. A producer has to take care about both the things while producing the goods(Hartline, 2007). The absolute advantage is the thing which all the nations worry about and take care about. In this the producers see that the inputs required to produce the goods cost the minimum. That means that the producers see that the cost of producing a good is the least so that the expenses can be cut down under this. The main aim under this of the producers is to produce the best quality of the goods at the minimum cost so that the cost of production of the good does not exceed. The other term used is the comparative advantage. It refers to the concept of the opportunity cost of the goods. In this the producers see that the things and resources available for the production of the good can be best used for what thing. This refers to the comparative advantage as the producers compare between the productions of the two goods in the market and see production of which goods would benefit the consumers. It refers to choosing the lower cost of production over the other. Hence both the comparative and absolute advantages differ at various levels. Both can never be taken as one thing and hence play different roles in the economy References Hartline, M. (2007). Marketing Strategy - Page 234. London: Springer . Morgan, K. (2014). Price Elasticity of Demand for Mylan Laboratories, Pittsburg. London: Wiley Publishers