In: Economics
Q1. A student from one of the least developed country claimed that her home country would not be able to benefit from international trade because the country was the absolute worst in producing everything and was lack of all kinds of resources. Do you agree with her argument? Use your knowledge of the three trade models (The Ricardian Model, the HO Model and the Krugman Model) to support your answer.
Answer:
Q1.
agree or not with student argument:
YES
the claim of the student is correct that her least developed home country would not be able to benefit from international trade because the country was absolute worst in producing everything and was lack of all kinds of resources.
Reason:
A country benefits from international trade when it has comparative advantage of a product over another country and vice-versa depending on technological differences across nations.
Again, countries benefit from international trade when they export products that use their abundant and cheap factors of production and import products that use their scarce resources.
Lastly, consumers prefer a diverse choice of brands and the production favours economies of scale.
Each country benefits when they specialize in producing a few brands of any given type of product instead of specializing in different types of products taking into consideration economies of scale.
Hence. i agree with the student.