Question

What role does comparative advantage play in trade and global markets?

Answer 1

To promote specialization that will increase the global output, and then bring about a fall in the prices if goods in the global market.

Step-by-step explanation:

The principle of comparative advantage states a country should specialize and produce more of a good in which it has a lower opportunity cost of production, and import the good in which it has a higher opportunity cost of production.

The opportunity cost of production refers to quantity of a good that has to be forgone in order to produce one extra unit of another good. The lower the number of unit to give up, the lower the the opportunity cost. On the other hand, The higher the number of unit to give up, the higher the the opportunity cost.

The aim of the comparative advantage is to promote specialization of nations in the production of goods they have the lowest opportunity cost. As the specialization increases, the world output will increase, prices of good will fall in the global market, and this will bring about improved standard of living as most goods are cheaper and affordable to all.

Answer 2

Countries would be able to increase their productivity for the services with comparative advantage. A country then can sell products they produce efficiently and also would buy from other nations the products that they cannot produce. The comparative advantage can lose if there are competitors operating in a low wage country.