Question

Thoroughly explain the theory of Comparative Advantage, and criticism of the theory as expressed by the mercantilist perspective.

Answer 1

Theory of comparative advantage states that if coutries produces goods where there is a lower oppurtunity cost , that will result in an in crease in economic welfare.

This is an economic theory which states that there is a comparative advantage of one over another if a particular good can be produced at a lower relative oppurtunity cost. So the oppurtunity cost under free trade should be compared across countries .This explains the reason why countries even with the most advanced resources engages in international trade.