Question

Theories of absolute and comparative advantage contribute to the interpretation of the international trade process. With that in mind, here are some examples of products where you can implement an absolute and comparative advantage in every country you are commissioned to study:

1) Cars
2) Petroleum
3) Computers
4) Medicines
5) gone

Discuss the possibility of Italy and oman having an absolute advantage, a comparative advantage, or a lack of a specific advantage for each product

Answer 1

1. Cars- Italy will have a comparative and absolute advantage in cars. Oman has no automobile building industry to speak of while Italy has very little oil industry. Italy will sacrifice far less oil production in producing a car as compared to Oman and hence will have a comparative advantage.

2. Petroleum- The reverse is true here. Oman will have a comparative and absolute advantage in petroleum production.

3. Computers- Both countries have very little infrastructure to produce computers. Italy might have a little absolute advantage, but not necessarily comparative advantage.

4. Medicines- Italy will have absolute advantage but Oman should have comparative advantage. Oman doesnt have much infrastructure for medicines but it does have oil industry which produced a lot of raw materials for many medicines and that can give it comparative advantage.