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Chapter 33: Q. 9. (page 803)

Under what conditions does comparative advantage lead to gains from trade?

Short Answer

Expert verified

Due to exchange opportunities and higher total output and level of consumption, comparative advantage lead to gain from trade.

Step by step solution

01

Step 1. Meaning of comparative advantage.

Is an economy's ability to produce a particular good or services at a lower opportunity cost than its trading partners. Basically, comparative advantage refers to the products that a country can produce more cheaply or easily than other countries.

02

Step 2. Conditions that lead to gains from trade under comparative advantage.

a) Due to this comparative advantage, this lead lead to results in exchange opportunities that lead to consumption opportunities beyond the PPC.

b) Due to the trade between two countries or agents, it allows the countries to enjoy a higher total output and level of consumption than what would have been possible domestically.

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Most popular questions from this chapter

You just overheard your friend say the following: “Poor countries like Malawi have no absolute advantages. They have poor soil, low investments in formal education and hence low-skill workers, no capital, and no natural resources to speak of. Because they have no advantage, they cannot benefit from trade.” How would you respond?

Do consumers benefit from intra-industry trade

True or False: The source of comparative advantage must be natural elements like climate and mineral deposits. Explain.

True or False: The source of comparative advantage must be natural elements like climate and mineral deposits. Explain

What is absolute advantage? What is comparative advantage?
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