Economics Comparative Advantage Questions
Transportation costs play a significant role in determining comparative advantage. Comparative advantage refers to a country's ability to produce a particular good or service at a lower opportunity cost compared to other countries.
Transportation costs directly impact the cost of exporting goods from one country to another. If transportation costs are high, it becomes more expensive to transport goods across borders, which can reduce a country's comparative advantage in producing and exporting those goods. This is because the higher transportation costs increase the final price of the exported goods, making them less competitive in the global market.
On the other hand, if transportation costs are low, it becomes more cost-effective to transport goods, enhancing a country's comparative advantage. Lower transportation costs allow for more efficient trade, enabling countries to specialize in producing goods that they can export at a lower cost compared to other countries.
Additionally, transportation costs also influence the distance factor in determining comparative advantage. If transportation costs are high, it becomes more challenging for countries that are geographically distant from each other to engage in trade. This can limit the potential for specialization and hinder the development of comparative advantage.
In summary, transportation costs have a significant impact on determining comparative advantage. Higher transportation costs can reduce a country's comparative advantage by increasing the cost of exporting goods, while lower transportation costs can enhance a country's comparative advantage by making trade more efficient and enabling specialization.