Enter the quantity of a good or raw material 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 to Canada with respect to oil as 2 or 2:1 ratio.
A 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 material of different countries. For example, the comparative advantage of the supply of oil between the US and Canada.