Which trade theory has these implications: (1) nations may benefit from trade even when they do not differ in resource endowments or technology; and (2) specialization allows for scale economies and lower production costs?

Question

Daniela Brock

Business

7 May, 05:54

Which trade theory has these implications: (1) nations may benefit from trade even when they do not differ in resource endowments or technology; and (2) specialization allows for scale economies and lower production costs?

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Answers (1)

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Laney Jensen · Answer 1

Ricardo's theory of competitive advantage.

Explanation:

Ricardo postulated that two countries can have the same resources but have comparative advantage in producing some of the goods. When these countries specialise in the commodities they have comparative advantage in and when they trade they will have total less cost of production.

For example if two countries both produce pencils and Biros. Country A has more advantage producing pencils while Country B advantage producing Biros.

Country A and B can specialise the products where they have lowest cost therefore minimising cost. Both countries will benefit from the trade.