Economics Production Possibility Frontier Questions
Comparative advantage affects trade between countries by determining which goods or services each country should specialize in producing. When a country has a comparative advantage in producing a particular good or service, it can produce it at a lower opportunity cost compared to other countries. This means that the country can produce more of that good or service with the same amount of resources or produce the same amount with fewer resources.
As a result, countries with different comparative advantages can benefit from trading with each other. They can specialize in producing the goods or services in which they have a comparative advantage and then trade with other countries for the goods or services in which they have a comparative disadvantage. This allows countries to maximize their overall production and consumption possibilities, leading to increased efficiency and economic growth.