Suppose two countries have the same productivity per person for Goods X and Y. What would...

Suppose two countries have the same productivity per person for Goods X and Y. What would cause them to have trade in Goods X and Y?

Expert Solution

Theoretically no international trade will take place if the productivity is same per person for good x and good y because no country has absolute or comparative advantage but practically international trade will take place

By specializing in a particular product a country can increase its labour productivity by doing research and development work in a field of particular product and labour can be trained to manufacture particular product better than other so overall production will increase and therefore overall consumption will increase and it will lead to increase in welfare .

Two countries may have same productivity per person for two goods but demand for a particular good lets assume demand for good X is high and demand for good Y is low in country A and demand for good Y is high and good X is low in country B due to taste and preference of two countries .So country A will import good X from country B and export good Y to country B.

Rahul Sunny answered 1 year ago

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Suppose two countries have the same productivity per person for Goods X and Y. What would...

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