Based on the definition of specialization and comparative advantage, what area in the world could be said to have a comparative advantage in oil production? A) African countries B) European countries C) Middle Eastern countries D) Central American countries

Question

Naima Higgins

Business

12 September, 06:54

Based on the definition of specialization and comparative advantage, what area in the world could be said to have a comparative advantage in oil production? A) African countries B) European countries C) Middle Eastern countries D) Central American countries

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Answers (1)

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Simeon Hutchinson · Answer 1

In terms of specialization and comparative advantage the Middle Eastern countries have comparative advantage in oil production.

Hence, option C is the correct answer.

Explanation:

The theory of "Comparative advantage" is given by the economist David Ricardo. He says that a country is said to have comparative advantage in a good / service if it can produce that good / service at a lower cost in terms of other goods.

Hence, the concept of "comparative advantage" involves opportunity cost, as the resources are limited in any economy and the country has to give up some goods / services in order to employ its resources more in a good or service has comparative advantage.

Comparative advantage may occur because of the rich presence of natural resources. The middle Eastern countries have plenty of oil reserves naturally and this gives them comparative advantage in oil production and hence they produce oil inexpensively. Because of the huge returns they got through the trade of oil they were able develop technology and got specialized in oil production.