Economics Comparative Advantage Questions
An example to illustrate the concept of comparative advantage is the trade between two countries, Country A and Country B.
Country A has a lower opportunity cost in producing wheat, meaning it can produce a given quantity of wheat at a lower cost compared to Country B. On the other hand, Country B has a lower opportunity cost in producing textiles, meaning it can produce a given quantity of textiles at a lower cost compared to Country A.
In this scenario, it would be beneficial for Country A to specialize in producing wheat and for Country B to specialize in producing textiles. By focusing on their respective areas of comparative advantage, both countries can maximize their overall production and efficiency.
Country A can then export its surplus wheat to Country B, while Country B can export its surplus textiles to Country A. Through this trade, both countries can obtain goods at a lower cost than if they were to produce them domestically. This demonstrates how countries can benefit from specializing in the production of goods in which they have a comparative advantage and engaging in international trade.