The Concept and Sources of Comparative Advantage

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Comparative Advantage Abstract The first section of the paper discusses the concept of comparative advantage and the factors that determine trade. The second section of the paper focuses on analyzing the sources of comparative advantage of national economies. The paper continues with an analysis of the international movement of production factors. There is also a section that addresses the economic effects of tariffs and non tariff barriers. The concept of comparative advantage refers to countries' ability to produce certain products and services at lower marginal costs in comparison with other countries. This concept is in strong relationship with international trade. This is because countries prefer to trade with each other the products and services that provide them with comparative advantage. For example, if a country can produce wine at lower costs, but produces clothes at higher costs, that country should trade its excess wine for the clothes produced by another country at lower costs, and that requires that wine, because it cannot produce it at such lower costs. Therefore, trade occurs from the need of having products and services that can be produced at lower costs than by the country that requires them, and that can be obtained by trading the excess of product that provides comparative advantage. It is obvious that trade relationships are intensified between countries that have comparative advantage in products and services required by countries that have
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