Enter the quantity of goods or raw materials in two different countries to calculate the comparative advantage.
Comparative Advantage Formula
The following formula is used to calculate the comparative advantage.
CA = A/B
- Where CA is the comparative advantage of raw material A to good B.
- A is the quantity of raw material in country A.
- B is the quantity of raw material in country B.
Comparative Advantage Definition
A comparative advantage is a measure to monetary advantage a country has over another country due to it’s natural resources.
Comparative Advantage Example
How to calculate comparative advantage?
- First, determine the quantity of raw material in the first country.
For this example, we will say the US has 100 million barrels of oil available to sell or use.
- Next, determine the quantity of raw material in the second country.
We will say that we are comparing the US to Canada and Canada as 50 million barrels of oil available.
- Finally, calculate the comparative advantage.
Using the formula we calculate the comparative advantage the US has over Canada with respect to oil as 2 or 2:1 ratio.
Comparative advantage is the ratio of the quantity of two different raw materials available to a country. It can also be used to compare the availability of raw materials of different countries. For example, the comparative advantage of the supply of oil between the US and Canada.