How does comparative advantage affect the balance of trade?

Economics Balance Of Trade Questions



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How does comparative advantage affect the balance of trade?

Comparative advantage affects the balance of trade by influencing the pattern of international trade between countries. When a country has a comparative advantage in producing a particular good or service, it means that it can produce that good or service at a lower opportunity cost compared to other countries. This leads to specialization and trade, as countries focus on producing and exporting goods or services in which they have a comparative advantage.

As a result, countries will import goods or services in which they do not have a comparative advantage, allowing them to benefit from the lower opportunity cost of production in other countries. This leads to an imbalance in trade, where one country may have a trade surplus (exporting more than it imports) and another country may have a trade deficit (importing more than it exports).

Overall, comparative advantage influences the balance of trade by determining the types and quantities of goods or services that countries trade with each other, leading to imbalances in trade between nations.