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Basing your explanation on the law of comparative , explain why countries conducting
international trade are better off advantaged on producing goods than importing
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Basing your explanation on the law of comparative , explain why countries conducting
international trade are better off advantaged on producing goods than importing
Comparative benefit is the potential of a state to produce goods and services at a lower
opportunity cost than another country in international trade relationships. In connection to
economics the term is commonly applied to nations and their economic capacity in t rade. The
law of comparative advantage is the major guideline in international trade between states even
if the states capacity in business, factory and working category is very efficient in production
of each particular product than other countries.
The comparative law in economics builds the basic of the reason as to why free trading
in countries is profitable. The theory behind this law gives merits that a state enjoys in
production of goods. The theory main purpose informs law making, aids in resolution of
challenging questions, provides a basic factor for harmonization by simplifying increment of
knowledge and extensive awareness in legal education.
The following factors elaborates the roles of comparative law in international trade and
advantages it has to countries with the ability of producing the goods rather than importing the
products or the services while trading. Firstly, Comparative law unifies the laws of trading in
international trade. Through this challenges is overcome in economic capacity of the country.
The comparative method gives similarities and differences in the legal sector and thus aids in
creation of undeviating policy in trade. It is a significant aspect of acceptable operation in
economics.
The comparative law as explained by Ricardo in his theory in economics, giving
examples with England and Portugal states. For instance if England and Portugal were to
trade wine and cloth products. Today’s economics are aware that the trade could be of gre at
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benefit if England was good at producing cloths while on the other side Portugal providing
production of wine. The states would categorically give the product which they are best in its
production rate and quality. This is to suggest that each particular country would target on the
area they did better than any other country. Ricardo depicted that trade could be proofing even
if England was not only better at making cloth but also good at producing wine as well.
Categorically, what if England was a little better than Portugal at producing wine but much
better than Portugal at producing cloth. In this way, both states could still make a lot if
England focused on producing cloth and Portugal focus on producing wine then they engage
in trading activities. Portugal had no absolute advantage in producing wine but still had
comparative merit in its production in comparison to the alternative production of cloth, wine
production was still Portugal’s major competitive good.
A similarity in actual global trade circumstance existing today between the United
States and Bangladesh. The United States is better in production of high-tech goods and
clothing than Bangladesh. Although, Bangladesh is a bit behind the United States in clothing
while it is far behind the United States in producing high Technology. It is more reasonable
for Bangladesh in production of textiles and for the United States to specializing in high
technology production. Through doing that, clarification of certain behavior patterns for the
production of these goods whether they are valid is shown through trading. Assistance is
offered in educating those who wish to work in those countries. This situation gives way on
areas where similar work can be established at a lower opportunity cost while trading.
For example, a rock band company wants to start making t-shirts so that it can sell at its gig.
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This can be achieved at an advantage when it is done it is done either through paying a
clothing company to publish t-shirts then pay the fee to the company for every particular shirt
it makes or through buying its own printer equipment to print those t-shirt and then use the
machine to make the t-shirts. While viewing small scale trade outsourcing the clothing
producers to another organization gives a comparative advantage. This is because the
Members of Band, their expertise could involve music not in making of clothes. Time and
writing, recording, practicing and performing of current music would otherwise go toward
writing if they could delve into business of the production of clothes. The band would be
necessitated to make a huge capital investment to get their manufacturing operation off the
ground, which could cost a lot of sales to pay that off. Although, a band getting an
opportunity to sell t-shirts in large scale voumes.
In this, Comparative advantage could be depicted if they would invest in their own
machines and produce the merchandise in their company. There would be a large outlay of
capital cooperated with hiring staffs to produce the shirts, but after managing that, when they
begin the production of the clothes in large scale the band might find it making huge profits
on mass scale than if they would outsource the production to an external company. This factor
shows that Comparative advantage is not regular across all aspects in businesses with in a
particular firm. Scale production can make a large difference.
The doctrine of comparative advantage has underlain almost complete discussion of
international trade. It has received attention from various economists of the continent and
sometimes has some elaborations bearing on the facts of the firms which are not only
theoretical consistent but have direct application to the facts and in particular indispensable in
elaborating the international trade of the united states and the staffs of our tariff strategy.
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Neither the familiar argument have controversy nor the course of our historical industry can
be comprehended unless the guidelines of comparative advantage is clearly understood and
kept firmly in place. Shortly listed the doctrines in that state under circumstances tends under
ways of freedom to devote its labour and capital to firms in which they work to effectively
perform. It is not profiting to turn to firms in which though they labour and put their capital at
that area, they are applied with less effect than in more advantageous industries.
This principle is simple enough and neither is it applicable completely to international
trade. Producers benefit from international trade when there is restrictions and barriers on trade
and when they are lifted, this makes producers supply of commodity to increase and due to this
increment the exports of goods and services from the country increases. Through exporting, a
country has potential of gaining ownership merits and there is low cost development on different
products. It is better for a country to export more of its products than its imports. Availability of
high exports, there is a high level of output from a country’s industries and company’s facilities.
This leads to high employment rate to maintain the factories in operation. This means that
development of economy in the country is achieved.
A possibility in production of goods and supply of service comes with comparative
advantage, considering instances of two goods in trade. Refrigerators and shoes, in countries
such as United States and Mexico. In the market, involving this two commodities consumers and
manufactures cannot differentiate shoes from United States and still they cannot differentiate
American and Mexican refrigerators. The United States has absolute advantage in producing
both refrigerators and shoes. In this, it takes lesser staffs in United States than in Mexico to make
both number of shoes and a given number of shoes and a certain number of refrigerators.
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Comparison between productivity of a worker between country just gives the account of absolute advantage in tr
equation of the number of inputs the country requires to produce shoes in Mexico. Although Comparative advant
question in a different way
Slightly. Instead of determining the numbers of staffs are required to produce the product, it tends to establish th
require to produce the product in the country. Comparative advantage establishes
The product from which the manufacturer is relatively larger.
There is Mutual benefit in trade line to countries operating international trade which is achieved when
Through law of comparative in economics. When countries production rate increases in the area of comparative a
with each other both states might benefit. A useful tool to visualize this benefit is the production possibilities fro
possibilities frontier shows the maximum amount that each state can make given its limited resource, in this parti
Taking an example with the United d states and Mexico each having 40 staffs. When United states divides its wo
workers are producing shoes then, it shows that 10,000 shoes will be produced if four workers can produce 1,000
will produce 10,000 shoes. When 40 staffs in the United states are producing refrigerators and each worker1000
40,000 refrigerators will be produced. It is obvious that the production possibility slope frontier for each particula
opportunity cost of one refrigerator in terms of the foregone shoe production. If labor is transferred from making
the former. The other points on production possibility line are possible combinations of the two goods that can be
current resources.
Shift in production of goods raises total output when dealing with comparative law in trade. Even when one state
in all goods and another country has an absolute disadvantage in all goods both countries can still benefit from tr
United states has an absolute advantage in making both refrigerators and shoes it makes both refrigerators and sh
sense for United State to Specialize in the product for which it has a comparative advantage. In this case, United
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refrigerators and import shoes in return.
The comparative law in trade helps in determining straight frontier lines. When drawing production possibility fr
bending shape, it illustrates that an input was transferred from manufactruring goodto another. Such from educat
There is an increase in opportunity costs. In such a case the Production Possibility Frontier is drawn as straight li
the opportunity costs are c When constants. When marginal unit of labour is transferred away from froing corn to
the decline in the quantity of corn and increase in the quantity of oil is always the same. In real life situation, this
only when the contribution of additional workers to output do not fluctuate as the production scale changes.
The linear production possibilities frontier is a less realistic model, though a straight line simplifies the computat
illustration of economic subjects like absolute and comparative advantage. Through setting opportunity, cost in
trade is achieved. This shows that both parties can profit from specializing in their comparative advantage and tra
in this case tries to identify the range of trade possibilities that would benefit in each country. Before specializati
producing 4,000 pairs of shoes and 5000 refrigerators. The numerical illustration given Mexico shifted productio
advantage and manufactured 6,000 pairs of shoes but only 2,500 refrigerators. This shows that if Mexico cannot
pairs in exchange for imports of at least 2,500 refrigerators. It will be with a potential of import more of both goo
be in a better position. In the case with United States before specialization and trade, it produced 5,000 pairs of sh
refrigerators; it shifted production towards its comparative advantage position and was in a point of producing 3,
refrigerators. When the United States has the ability to export no more than 6,000 refrigerators in exchange for im
shoes, it will be in a position to consume more of both goods and it will be comparative advantaged. That particu
countries is illustrated from the same.
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The trade between United States and Mexico shows range of benefit for both countries. The kind of trading way
country to take a merit of lesser opportunity cost in the other country. When Mexico wants to produce more refri
should account for its domestic opportunity costs and reduce shoe production.
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Where there is lower opportunity cost of production of refrigerators in the United States then Mexico has a possi
the lower opportunity cost of refrigerators in the United States. If the United Staes specializes in its comparative
production and trade for shoes made in Mexico then international trade allows the United States to take advantag
of production of shoes in Mexico. The Comparative advantage Theory elaborates why these countries trade. This
comparative advantages.
It explains that the benefits from international trade results from pursuing comparative advantage and producing
A country like Saudi Arabia has a comparative advantage in producing oil, because it gives up the least to produc
called by the comparative advantage defined as the opportunity cost of producing products.
Canada has the absolute and comparative advantage in lumber production. It has a relative lower production cost
should specialize in it.
Several factors determine comparative advantages and the sequence of international trade. An interntaion; econo
reasons to explain why countries have differences in production rate.
Firstly, Availability of natural resources determines significantly, when comparative advantages in trade is said.
highly endowed with a certain natural resource have an advantage. Countries with plenty of oil resource can gene
Saudi Arabia produces oil at a lower production cost
. It holds a comparative advantage in production of oil. It exports oil in order to finance imports puchases. The sa
with huge forests are major exporters of timber and paper products. The supply available for exports also depend
instance, Canada has large quantities of availability of lumber for exports to the United States. This is because its
small amount of the supply. Therefore leaving behind a lot of the Lumber available for exports.
Another factor is favorable climatic condition that allows an export advantage. Central American
Countries export for instance export bananas. The climatic conditions in the country supports the
growth of the crop thus become a source of foreign exchange.
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To conclude on the above, the assumption of constant costs leads them to conclude the
differences in the particular countries carrying out the trade. That would completely specialize in
the production of a single product based on their comparative costs.
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References
Courses.lumenlearning.com. 2021. Comparative Advantage and the Gains from Trade |
Microeconomics. [online] Available at: <https://courses.lumenlearning.com/wmmicroeconomics/chapter/comparative-advantage-and-the-gains-from-trade/> [Accessed 5
July 2021].
Lynham, J., 2021. 19.1 Absolute and Comparative Advantage. [online]
Pressbooks.oer.hawaii.edu. Available at:
<https://pressbooks.oer.hawaii.edu/principlesofmicroeconomics/chapter/19-1-absoluteand-comparative-advantage/> [Accessed 5 July 2021].
2021. [online] Available at:
<https://www.researchgate.net/publication/29744390_Comparative_Advantage_of_Selec
ted_Agricultural_Products_in_Hawaii_A_Revealed_Comparative_Advantage_Assessme
nt> [Accessed 5 July 2021].
Courses.lumenlearning.com. 2021. Comparative Advantage and the Gains from Trade |
Microeconomics. [online] Available at: <https://courses.lumenlearning.com/wmmicroeconomics/chapter/comparative-advantage-and-the-gains-from-trade/> [Accessed 5
July 2021].
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