Question

What is comparative advantage? Explain how international trade is based comparative advantage.

Answer 1

The comparative advantage theory of international trade developed by economists David Ricard in 1817. According to the theory, the comparative advantage theory trade occurs between the nation due to comparative advantages of the cost difference.

The comparative cost difference is the basis of the international trade.

Example as follows

country	A	B
X	80	90
Y	120	100

In the above table country, A has the absolute advantage over B in both good A and B but still, trade can take place it is the advantage for the country to specialize in the production of the goods A and for the B country B goods which has the least comparative advantage.