Question

Describe comparative advantage theory and gravity model theory. give examples.

Answer 1

Comparative advantage: A country has a comparative advantage over another if it can produce a certain product or a commodity, at a lower opportunity cost than the other country

Example Country A produces 5 ice creams  and 5 shoes/ hour
- Country 2 produces 4 ice creams and 2 shoes/ hour
Country 2 can gain comparative advantage by producing ice creams and shoes at a lower cost.

gravity model theory.-: Gravity model shows the Interaction is proportional to the multiplication of the two populations divided by the distance between them

xample: The gravity model explains why the trade between russia and germany exceeds that between russia and portugal