Question

1. Can comparative advantage be created?
2. If yes, explain how countries can create comparative advantage. In your answer you need to refer to the role of government, access to external markets, and historical accidents as the factors that have played a major role.
3. What are the prominent examples of such cases? Give at least 3 global examples.

Answer 1

Ability of an economy to produce a particular commodity or service at lower opportunity cost than other countries is termed as comparative advantage. This country will sell the products at lower prices than other countries. There is a stronger sales margin existed in comparative advantage economies. The government will give incentives for the production of goods and services which sold at lower prices than producers. This comparative advantage firm or country will give higher profit than other competitors. The inputs used for the production of this comparatively advantage products will be freely abundantly available in the country.
This comparatively advantage country has higher access to the external market. Thus the foreign demand will be increased with respect to this. So most of the international trade were based on this comparative advantage theory. The country has comparative advantage will trade more than other competitive countries. In case of global examples, China has a comparative advantage over the production of electronic goods with abundance of labour in the economy. Milk products from Ireland and planes exported from USA are other major global examples of comparative advantage. In case of these three countries, they will export the products which produced at cheaper rate by using the factor abundance criteria.