Assume that two countries are considering trading with each other for the first time. Also assume that one of the countries has an absolute disadvantage in producing everything compared to the other country
How would it still be possible for these two nations to benefit from trade with each other?
The reason that it would still be beneficial for each nation to trade with each other is because trade is not dependent on absolute advantage but rather comparative advantage. That means that one nation may be operating at an absolute disadvantage vis-à-vis another nation but still have a comparative advantage in at least one good or service.
You might also like to view...
How does a monopoly transfer consumer surplus to itself?
What will be an ideal response?
The Internet has made transactions between businesses (B2B trading) fast and easy. Any business in any location can access specialized knowledge, labor, and materials. It is likely that these virtual economic communities will result in
A) external economies of scale. B) internal economies of scale. C) consolidation of industries into a small number of powerful firms. D) suppression of innovations and collusive behavior, driving up prices. E) government intervention and regulation.