Question

Why is comparative advantage rather than absolute advantage the basis for trade?

Answer 1

a). This is because the with the absolute advantage the countries cannot gain from the trade, the country has a comparative advantage when it produces the goods and services with lower opportunity cost than the other countries. While the a country enjoys the absolute advantage when they produce more amount of goods and services of with the same resources. It is impossible to have comparative advantage in the production of all goods and services so they export the good which they enjoys the comparative advantage and import the goods which they have a comparative disadvantage.