Because of trade, individuals, firms, regions, and nations can specialize in the production of
things they do well and use the earnings from these activities to purchase from others those items
for which they are high-cost producer (Carbaugh, 2013, pp. 12
Comparative advantage is used to explain international trade patterns, but it also suggest that
specialization and trade can lead to grain for both nations.
There is more to gain as each citizen of each nation spend more of their time and resources doing
Case of Comparative Advantage:
Country A produces Cotton X for 3, Silk Y for 6
Country B produces Cotton X for 4, Silk Y for 7
Country B has an absolute disadvantage, as its costs are much higher for both goods.
However, comparative costs:
Country A Count
With transportation cost its refer to the cost of moving goods, including freight charges, packing
and handling expenses, and insurance premiums (Carbaugh, 2013, pp. 97-98).
Transportation cost adds to the overall cost of the product when it reaches in th
The more trade that takes place, the lower the specialization throughout those industries, which
directly leads to lower wages in those areas. The areas that are the most specialized or that
require a high degree of customization are not the jobs that are
Absolute Advantage so with two-nation, two-product world, international specialization and
trade will be beneficial when one nation has an absolute cost advantage in one good and the
other nation has an absolute cost advantage in the other good (Carbaugh,
Advocates of strategic trade policy recognize that the classical argument for free trade considered
externalities at length. The difference, they maintain, is that the classical theory was based on
perfect competition and thus could not appreciate the mos