Comparative advantage can be defined as the efficiency of a country or a state to produce a certain commodity at a lower opportunity cost over another country or state. This applies to international trade where a country can produce a certain good or service at a cheaper cost than another. Therefore, it only makes sense for the other country to buying from the producing country as it will be cost effective. International trade refers to the exchange of goods and service between one country and the other at a price, which is accepted by both countries. A theory can be understood to be a discipline of critical thinking and shared ideology of a given topic in science. Thus, comparative advantage trade theory refers to a clear understanding of the trade that exists between countries that depend on each other in production and distribution of goods and services. One country is able to find a market for its goods and the other is able to purchase goods at a much cheaper price than it would use to produce the same goods. One country is efficient than the other in the production of a certain product and thus it makes sense when both countries get involved in the business. The country that purchases the goods will shift some of the manufacturing attention to a good that it can produce at a much lower price thus increasing its efficiency. Comparative advantage compares the efficiency of a county to produce a product at a much cheaper price than another country under the same economic condition. There exists a relationship of co-existence between two countries. In this case, each country is able to indulge in the production of a commodity that it can produce at a much cheaper price and purchase the ones it cannot produce efficiently (Leamer, 46).
Economics is a science that seeks to understand production, distribution, and the consumption of goods and services in the society. It helps to understand forces of demand and supply that exists in the market. Market forces dictate how certain goods are produced and offered in the market as they try 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. This makes it easier for one country to produce a certain good or service at a much price than the other country. This comparative advantage may be as a result of a country having cheaper labor or availability of capital to produce the given good. A country may be strategically located close to available 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 large quantity of goods than producing small quantity of good under the same production process. Comparative advantage has been the backbone of international trade and its development, as well as increasing efficiency of 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 production and distribution of goods and services. International trade helps each country to earn foreign exchange, which is vital to facilitate stability of their currency (Maneschi, 12-15).
Comparative advantage helps a country to specialize in the productions of a given commodity production and purchase other commodities that are available in other countries at a much cheaper price compared to what it would cost them to produce such gods 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 in its economy. Therefore, best way is to acquire such goods and services from other countries that can produce them at a much cheaper production cost. International trade helps to use factors of production effectively and efficiently within a country. 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 the goods. International trade helps to promote relations between trading partners through exchange of technological and production skills to 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 of one country to produce a certain commodity at a cheaper price than another country given the same economic condition is brought about by one country having a better opportunity cost in the production of the commodity. 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 stabilizing of the economy in different countries through exchange of information and technology.
Leamer, Edward.Sources of International Comparative Advantage: Theory and Evidence. Cambridge, Mass. u.a: MIT Pr, 1984. Print.
Maneschi, Andrea. Comparative Advantage in International Trade: A Historical Perspective. Cheltenham u.a.: Elgar, 1998. Print.