Question

Discussions: Compare/contrast one approach from column A with one from column B.

A: a. Comparative Advantage. b. Mercantilism.

B: a. Modern-Trade Theory. b. Heckscher-Ohlin-Model.

Answer 1

Comparative advantage

HO theory

The theory of comparative advantage, states that a country should produce and export those goods and services for which it is relatively more productive than are other countries and import those goods and services for which other countries are relatively more productive than it is (Mahoney, Trigg, Griffin, & Pustay, 1998). -Economists use the term comparative advantage when describing the opportunity cost of two producers. The producer who has the smaller opportunity cost of producing a good is said to have a comparative advantage in producing that good.

Relative commodity prices between two nations is evidence of their comparative advantage and forms the basis for mutually beneficial trade. -The Heckscher Ohlin theorem states that countries which are rich in labour will export labour intensive goods and countries which are rich in capital will export capital intensive goods.