Factor Prices, Comparative Advantage and International Trade

Dr. Mounica Vallabhaneni

Abstract

Economics fundamental ideas of comparative advantage and international commerce explain the advantages of specialization and trade between nations. An overview of comparative advantage and its function in global trade is given in this chapter. The ability of a nation or an individual to produce a certain good or service at a lower opportunity cost when compared to other nations or individuals is known as comparative advantage. It is founded on variations in resource endowments, technology, and degrees of efficiency. According to the idea of comparative advantage, nations should focus on producing commodities and services in which they have a comparative advantage before engaging in international trade to acquire goods and services that other nations produce more effectively.