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Explain what comparative advantage is and how it relates to opportunity cost. How do these principles explain why Americans have exported customer service operations to India?

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Blitztiger
Comparative advantage occurs when one country has a relatively cheap way to shift production towards the target good/service. For example, consider America and India producing customer service operations and another product such as precision tools.

Both America and India are capable of producing precision tools as well as customer service operations. However, America may have an edge in terms of established technology and process flows for making precision tools. This means that if America wants to give up some of its production capacity of tools so that it can produce customer service operations, it would sacrifice quite a lot of its current tool production capacity.

On the other hand, if India does not yet have technology and processes that are as advanced as America's, then if they were to sacrifice some of their tool production capacity and use it to perform customer service operations, they would only sacrifice a little capacity (since their current capacity is not as advanced as America's).

The principle behind comparative advantage is that the country who will sacrifice the least of the "other good/service" should be the one to shift their production efforts.
Parrain

Comparative advantage is a guiding principle in how countries should trade with each other.

Comparative Advantage:

  • Is an economic theory that posits that countries should produce goods that they incur less opportunity cost in.
  • Countries should buy goods that they have a higher opportunity cost producing.

The U.S. has a higher opportunity cost than India when it comes to customer service operations so going by the principles of comparative advantage, India should engage in customer service instead of the U.S.

In conclusion, Indians incur less opportunity cost in customer service and so the U.S. exports it there.

Find out more about Comparative advantage at https://brainly.com/question/4461081.

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