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  • Comparative Advantage and International Trade

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    Nandeesh Lingesh Shakunthala
    49 Ansichten2 Seiten
    The document discusses the theory of comparative advantage in international trade. It explains that comparative advantage allows countries to specialize in producing goods and services where they have lower opportunity costs compared to other countries. For example, Australia has a comparative advantage in apple production while India's is in banana production. The benefits of trade based on comparative advantage include rising living standards in both countries as firms buy goods more cheaply abroad. However, the theory has limitations such as assuming equal country sizes and perfect markets. Qualitative factors and trade barriers are also not fully considered. Overall, international trade is generally beneficial when countries import goods that can be produced more efficiently abroad.

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    Marketing Assignment 1

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    The document discusses the theory of comparative advantage in international trade. It explains that comparative advantage allows countries to specialize in producing goods and services where they have lower opportunity costs compared to other countries. For example, Australia has a comparative advantage in apple production while India's is in banana production. The benefits of trade based on comparative advantage include rising living standards in both countries as firms buy goods more cheaply abroad. However, the theory has limitations such as assuming equal country sizes and perfect markets. Qualitative factors and trade barriers are also not fully considered. Overall, international trade is generally beneficial when countries import goods that can be produced more efficiently abroad.

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    Attribution Non-Commercial (BY-NC)
    Als DOCX, PDF, TXT herunterladen oder online auf Scribd lesen
    Markieren Sie unangemessene Inhalte
    49 Ansichten2 Seiten

    Comparative Advantage and International Trade

    Hochgeladen von

    Nandeesh Lingesh Shakunthala
    The document discusses the theory of comparative advantage in international trade. It explains that comparative advantage allows countries to specialize in producing goods and services where they have lower opportunity costs compared to other countries. For example, Australia has a comparative advantage in apple production while India's is in banana production. The benefits of trade based on comparative advantage include rising living standards in both countries as firms buy goods more cheaply abroad. However, the theory has limitations such as assuming equal country sizes and perfect markets. Qualitative factors and trade barriers are also not fully considered. Overall, international trade is generally beneficial when countries import goods that can be produced more efficiently abroad.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Als DOCX, PDF, TXT herunterladen oder online auf Scribd lesen
    Markieren Sie unangemessene Inhalte
    von 2

    International Marketing

    Nandeesh.L.S (117634)

    The law of comparative advantage refers to the ability of a country to produce a particular good or service at a lower opportunity cost than another country. It is the ability to produce a product or service with the highest relative efficiency given all the other products and services that could be produced using the same resources (text book). Law of Comparative advantage explains how trade can create value for participating countries in trade even when one can produce all goods or services with fewer resources than the other. The net benefits of such a trade outcome are called gains from trade. To illustrate let the two countries under consideration be Australia and India .Both the countries produce Banana and Apple. Even when Australia uses all its possible resources to produce only Bananas its produces lesser bananas compared to India. When India uses all its resources in producing apples it produces lesser apples compared to Australia. Hence Australia has the greatest comparative advantage of producing apples where as India has the greater comparative advantage for Banana. Advantages  When a firm country buys a good or a service produced more cheaply abroad, living standards in both countries rise (McDonald 2009).  Foreign producers also benefit by making more sales than by selling solely at home and by earning foreign income that can be used to purchase foreign-made products.  Increased competition from foreign firms puts pressure on earnings, making room for more efficient firms.  Expansion and new entry in international trade introduce better technologies and new product varieties. Limitations  Theory of comparative advantage considers the economies to be of equal size, which is not possible in reality.  Full employment (maximum utility) of all the resources is not possible which is one of the major considerations of comparative advantage theory.  By its very nature, transport is linked to trade which is ignored and not factored in when countries decided to trade ( how Transport Costs Shape the Spatial Pattern of Economic Activity).  Perfectly efficient allocation of productive resources in an idealized free market which is a standard assumption.  The exception is foreign social costs of production is not included, such as pollution (McDonald 2009).Qualitative factors of the products and services are not considered.  Trade barriers affect some countries more than others in order to protect the domestic players.

    International Marketing

    Nandeesh.L.S (117634)

    According to Ricardo international trade is driven by comparative rather than absolute costs (of producing a good). Generally, the world is better off when countries import products that are produced more efficiently and cheaply abroad.

    References Text book


    McDonald, B.. (2009, December). Why Countries Trade. Finance & Development, 46(4), 48-49. Retrieved July 19, 2010, from ABI/INFORM Global. (Document ID: 1953757861).

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