Question

How comparative advantage principle is different from the absolute advantage principle? What is the role of opportunity cost in explaining international trade patterns?

Answer 1

The absolute advantage is nothing but the ability of the nation to produce more goods numerically, comparative advnatage on the other hand is the ability to give up less of the other goods while producing, this suggests the firm firm in the market is more efficient producing that goods.

Comparative advantage affects the international trade because a nation having an ability to produce the goods efficiently after specializing in the produciton will gain more when they trade from the rest of the world, this will also increase the profit and better utilitzation of the resources, this will also ensure that the nation is consuming above their PPF. Any nation having a comparative advantge in production of labor goods, like INdia or China will be exporting those goods, and nation like US having advantage in producing capital goods will export that.