Question

1. Define absolute and comparative advantage and explain the difference between the two concepts.

2. Describe free and fair trade and how they are different.

Answer 1

1.

• When a country is best with regard to the production of a certain good, we say that the country has an absolute advantage in producing that particular good. On the other hand, when a country is able to produce a particular good versus another while losing the least , we say that the country has comparative advantage.
• In case of absolute advantage a country employs fewer resources to produce a competitive good or by using same resources while the time taken is less.
• And in case of comparative advantage a country produces a good at a lower opportunity cost as compared to the another country.

2.  

• Free trade means less barriers of trade while having policies that are favorable to the nations involved in the cross border exchange of goods and services. However, fair trade addresses the pay discrepancies, worker rights, working conditions of workers and offers better trading conditions to the marginalized producers.
• Free trade involves the exchange of goods and services between the countries with no or lesser barriers. In free trade tariffs quotas or regulations are eliminated. Fair trade on the other hand addresses some of the negative effects of free trade. Fair trade design helps producers in developing countries to realize sustainability and impartiality.