Economics : international trade assignment

Added on - 28 May 2020

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Running head: ECONOMICSEconomics (Sources of comparative advantage)Name of the UniversityName of the StudentAuthor Note
1ECONOMICSInternational trade means the process of exchange among different countries. Thisexchange will be of capital, services or goods. Each trading partner enjoys mutual gains,when they specialise in a particular good or service. Moreover, for this particular good orservice, the country faces either comparative advantage (Laursen, 2015). In other words, acountry will produce that product in which it has less opportunity costs. Hence, a countryenjoys comparative advantage when it can produce a particular good or service with a lowercost compare to other countries. This theory is developed by David Ricardo. According tohim, a country’s welfare can be increased by applying this concept.Comparative advantage is a changing process. It means that comparative advantagecan change over time (Levchenko & Zhang, 2016). Hence, it is important for a country tofind out various sources of comparative advantage.Firstly, comparative advantage basically depends upon the quality and quantity ofchief production factors. Some countries have huge amount labour force and some countrieshave huge amount of capital investment. Secondly,the chief reasons behind this comparativeadvantage are geography and climate (Costinot, Donaldson & Smith, 2016). Due to thesedifferences, some countries enjoy low level of production costs compare to other countries.Thirdly,a country can enjoy comparative advantage if it has developed infrastructure facility.The government can invest huge amount of money to develop transportation andcommunication service. This will further decrease the trade cost and will increase supplycapacity (Schilke, 2014). Information and communication technology helps a country toenjoy comparative advantage in international trade by developing information orientedsector.There are some other important sources which are needed to analyse. Exchange ratefluctuation influences the relative prices of imports and exports. Moreover, it can increase or
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