Question

Why might intra-industry trade seem surprising from the point of view of comparative advantage?

a) Comparative advantage encourages diversification, not specialization within industries.
b) Intra-industry trade contradicts the concept of absolute advantage.
c) Comparative advantage suggests that all trade should be inter-industry, not intra-industry.
d) Intra-industry trade is a natural consequence of comparative advantage.

Answer 1

Intra-industry trade may seem surprising from the perspective of comparative advantage, but it is driven by factors like economies of scale and consumer preferences for variety.

Step-by-step explanation:

Intra-industry trade may seem surprising from the point of view of comparative advantage because comparative advantage suggests that all trade should be inter-industry, not intra-industry.

Comparative advantage encourages countries to specialize in the production of goods in which they have a lower opportunity cost and trade with other countries to obtain goods in which they have a higher opportunity cost.

However, in reality, countries engage in intra-industry trade because of factors such as economies of scale, technological advancements, product differentiation, and consumer preferences for variety.