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Chapter 19: Q1 (page 460)

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

Short Answer

Expert verified

The statement - comparative advantage must be due to natural elements, is False

Step by step solution

01

Comparative Advantage Meaning

Comparative Advantage means a country is able to produce a good with lower opportunity cost, ie lesser amount of other good sacrificed.

For eg : If country A can produce good 1 by trading off 2 units of good 2, & country B can produce it by trading 3 units of other good. Then, country A has comparative advantage in good 1.

02

Causes of Comparative advantage Concept

Comparative advantage can be due to natural advantages : like climate & natural reserves.

However, it can be due to many other factors

  • Human Resource & skills led efficiency
  • Technical know how led efficiency

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Most popular questions from this chapter

What is absolute advantage? What is comparative advantage?

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?

Does intra-industry trade contradict the theory of

comparative advantage?

How can there be any economic gains for a country from both importing and exporting the same good, like cars?

Do consumers benefit from intra-industry trade?
See all solutions

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