Suppose that Cambodia decides to become self-sufficient in bananas and even to export t In order to accomplish this, large tax incentives are granted to companies that will invest in banana production. Soon, the Cambodian industry is competitive and able to sell bananas at the lowest price anywhere. Does Cambodia have a comparative advantage? Why, or why not? What are the consequences for the overall economy?

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Comparative Advantage and Absolute Advantage Analysis

The theory of absolute advantage was given by Adam Smith in the year 1776.