Answered: Suppose a capital abundant country,…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose a capital abundant country, such as Canada, enters into free trade with a natural resource rich country, such as India.
I. Explain the form of trade, such as, who exports what and imports what, using the concept of comparative advantage in trade theory. Identify each country’s comparative advantage and disadvantage.
II. Explain how trade creates winners and losers within each country?
Note: You may/may not draw relevant diagrams to answer the above questions.

Definition Video Definition Ability of a country to produce goods and services at a lower opportunity cost compared to other countries. Here, opportunity cost refers to the forgone units of one good in order to produce one more unit of another good. For example, the opportunity cost of producing good X in country A is 2Y and in country B is 1.25Y. Country B has a lower opportunity cost of producing good X than country A. Therefore, country B has a comparative advantage in the production of good X. Video

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