Comparative advantage can be defined as the efficiency of a country or a state to produce a certain commodity at a lower opportunity cost compared to another another country. This applies to international trade where a country can produce a certain good or service at a cheaper cost than another nation. Therefore, it only makes sense for the other country to buy from the producing country as it will be cost effective.
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International trade refers to the exchange of goods and service between two countries at a price, which is accepted by both countries. A theory can be defined as a discipline of critical thinking and shared ideology on a given topic in science. Thus, the comparative advantage trade theory refers to a clear understanding of the trade that exists between countries that depend on each other for goods and services. In this case, one country can find a market for its goods.
On the other hand, the other country can purchase goods at a cheaper price than it would use to produce the same goods. One country is more efficient than the other in producing certain products. Therefore, it makes sense when both countries get involved in the business. In this case, the country that purchases the goods will shift some of the manufacturing attention to other goods that it can produce at an efficient cost.
Comparative advantage compares the efficiency of the country to produce a product at a cheaper cost than another country given the same economic conditions. There exists a relationship of co-existence between two countries. In this regard, each country can produce a commodity that it can produce cheaply and purchase the ones it cannot produce efficiently (Leamer, 46).
Economics refers to the discipline that focuses on the production, distribution, and consumption of products. It helps to understand the forces of demand and supply that exists in the market. Market forces dictate how certain goods are produced and offered in the market in an effort to satisfy the needs of customers. Thus, in a given economy, it is very hard to produce all goods and service that the economy may require.
Therefore, international trade should be introduced to cater for any commodity that a country may not be able to produce efficiently. A comparative advantage exists if two states differ in technological abilities and resource availability. Therefore, one country can engage in the production of certain goods or services at a lower cost than the other country. This comparative advantage may be as a result of a country having cheap labor or due to availability of capital to produce the given product.
A country may be strategically located in a place where there are raw materials and thus being able to save on transport cost and purchase of the raw materials. Economies of scale favor international trade as production cost fall due to the scale of production. For example, it becomes cheaper to produce larger quantities of goods than producing a small quantity of goods under the same production process. Comparative advantage has been the backbone of international trade and its development.
It has also led to increased efficiency in the country’s industrial production. International trade helps to promote world peace through efficient co-existence between trading partners. Good relations are enhanced through international trade as the countries depend on each other for the production and distribution of goods and services. International trade helps countries to earn foreign exchange, which is vital to facilitate stability of their currency (Maneschi, 12-15).
Comparative advantage allows a country to specialize in the production of a given commodity. Therefore, this country can purchase other commodities that are available in other countries at a much cheaper price compared to the cost of producing such goods under the current economic status.
A country can make good use of the available resources like human skills, education, and talent combined with enhanced machinery to produce goods and services. The country should then establish a better way to acquire the goods and service that it is not able to produce within its economy.
Therefore, the best way is to acquire such goods and services from other countries that can produce them at a low production cost. International trade facilitates the use of the factors of production in an effective and efficient manner. However, this can be costly due to taxes and tariffs imposed on the importation of the goods. Nonetheless, it helps to eradicate delays and low supply of goods.
International trade helps to promote relations between trading partners through the exchange of technology and production skills that increase production scale. Sharing of information and skills is enhanced through international trade where the citizens of these countries share culture. Transport and other infrastructure are improved through international trade as the exchange of goods and service promote the need to have developed transport system (Maneschi, 18-21).
Comparative advantage is brought about by one country having a better opportunity cost in the production of a commodity than the other. Comparative advantage has been instrumental in promoting international trade where countries or states exchange goods and service at an agreed price and terms. International trade helps to promote world peace and stabilizes the economies of different countries through the exchange of information and technology.
Leamer, Edward. Sources of International Comparative Advantage: Theory and Evidence. Cambridge, Mass. u.a: MIT Pr, 1984. Print.
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Maneschi, Andrea. Comparative Advantage in International Trade: A Historical Perspective. Cheltenham u.a.: Elgar, 1998. Print.