Question

How does Comparative Advantage provide the basis for international trade?

Answer 1

Comparative advantage theory states that a country economic ability to produce goods and resources at a lower cost compared to other countries with the resources available to it.

Comparative advantage theory is basis international trade because if a country is able to specialize in the goods are services it produce efficiently and buy goods or services from other countries which they can't produce efficiently than both the countries that are in trade will benefit.

International trade mostly runs on comparative advantage of trade because if one country able to sell goods to other country which they are producing at low opportunity cost than other countries also sell them goods in which they have comparative than both countries can get benefitts of goods at low costs. So these type of trade helps both countries in exports and imports. Trade also helps countries to capture new markets which will help both Producer and labour to earn more.

Thus comparative advantage of trade helps the economy to grow.