Final answer:
Intra-industry trade does not contradict comparative advantage; it reflects differentiating factors such as variety and quality within the same industry. It benefits consumers through the introduction of competition and variety, and it showcases the complexities of specialization and economies of scale on an international scale. The correct option is b) No, as intra-industry trade reflects differences in product quality and variety.
Step-by-step explanation:
Does intra-industry trade contradict the theory of comparative advantage? The short answer is no. Contrary to the belief that comparative advantage encourages countries to specialize in entirely different industries, intra-industry trade involves the exchange of similar products, which may initially seem at odds with comparative advantage. However, this form of trade reflects differences in product quality, variety, and innovation within the same industry.
Intra-industry trade allows countries to specialize in specific types of products within the same industry. For example, nations may trade different kinds of automobiles—such as gas-efficient cars vs. luxury cars—allowing each country to benefit from specialization and economies of scale. Moreover, this kind of trade introduces competition and variety, providing significant benefits to consumers, such as a wider selection of goods and potentially lower prices.
From the perspective of comparative advantage, intra-industry trade might seem surprising because it indicates trade between countries with similar opportunity costs. Nevertheless, nearly half of all global trade occurs between economically similar countries, suggesting that the positive effects of variety and specialization at more granular levels are recognized and capitalized upon in international trade.