Question

Why is comparative advantage important to a nations’ economic growth? How might it lead to specialization and growth in GDP? (GDP = total value of all goods and services produced in an economy)

Answer 1

First of all let us get the meaning of comparative advantage

A country is said to have comparititive advantage over other if it produces any goods or services at a lower opportunity cost

Opportunity cost simply is the ratio of what we give up to what we gain

GDPas we all know is the final production value of goods and services that is produced within the domestic boundary of a country in a financial year

So when any country is having a comparitive advantage in a good or service then it will take less opportunity cost for producing and this will lead to have specialisation in trade with other country

Here it should not be confused with the absolute advantage

Absolute advantage simply talk about the most output

But if a country is having comparative advantage then with the same resources it can gain more while using less and ultimately boosting the GDP as well

The best example of this is China

They know that they are having competitive advantage in manufacturing sector