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Comparative Advantage Trade Theory

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. It applies in international trade where a country can produce a certain good or service at a much cheaper cost than we do, and thus makes sense of us buying from them instead of producing it ourselves. International trade is the exchange of goods and service between one country and the other at a price which both countries agree on. 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 is clear understanding of the trade that exists between country that depend on each other in production and distribution of goods and service where both gain from the trade. 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 them. One country is much efficient than the other 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 in the same economic condition. There exists a relationship of co-existence between two countries where each country is able to indulge in the best production of a commodity that it’s able to produce at a much cheaper price and purchase the ones it cannot produce more efficiently (Leamer, 46).
Economics is a science that seeks to understand production, distribution and the consumption of goods and services in a certain 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’s very hard to produce all the goods and service that the economy may require and thus international trade must 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 and thus making 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 make it easier 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 in the long run 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 and 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 inter-depend on each other for production and distribution of goods and services. International trade in turn 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 a given commodity production and purchase other commodities that are available in other countries at a much cheaper price compared to what it would produce them at in its current economic status. A country is able to use well available resources like human skills, education and talent combined with better machinery to produce goods and services. It must then think of a better way to acquire the goods and service that it’s not able to produce in its economy and the best way is to acquire them from other countries that can produce them at a much cheaper production cost than it would on its own. International trade helps to use factors of production effectively and efficiently within a country, although it might be costly due to impose of taxes and tariffs on border points its 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 between them. Transport and other infrastructure are improved through international trade as more exchange of goods and service promote the need to have developed transport system (Maneschi, 18-21)
Comparative advantage of one country or state 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 named 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 in turn helps to promote world peace and stabilizing of the economy in different countries through exchange of information and technology.

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