Name : Julanda S. H.

AL-Hashmi Professor: Salim kublawi Class: Eco 305 Assignment: International Economics Date: 29th April, 2012

1 International Economics……………………………………………2 References………………………………………………………….Table of Contents Table of Contents………………………………………………….7 1 .

This explains why trade is still more beneficial even if one country seems to be better at producing both of two goods. at this case the two countries will addition by trading with each other. Comparative advantage provides a powerful explanation for the advantages of specialization in production.Comparative advantage refers to the ability of a country or a person for producing a specific good or services at a lower marginal and opportunity cost to each other. The conclusion drawn is that each country can gain by specializing in the good where it has comparative advantage. 2 . In Portugal both wine and cloth could be produced with less Labor than in England. compared to another country. closer to the cost of cloth. In his explained 1817 book. Portugal could produce both goods easily. Conversely England benefits from this trade because its cost for producing cloth has not changed but it can now get wine at a lower price. Therefore while it is cheaper to produce cloth in Portugal than England. unless they don’t have different associated conductive. Even if one country is more conductive in the production of all goods than the other. David Ricardo was one of the Most Influential of the classical economist. In his most important contribution was the law of comparative advantage. and trade that for English cloth. and trading that good for the other. which involved both countries England and Portugal. However the relative costs of both goods are different in the two countries. on the principle of political economy and taxation in an example. it is cheaper still for Portugal to produce excess wine.

comparative advantage explains the pattern of trade between two nations: mutually beneficial trade occurs between two nations when each specializes in the production and export of the product for which it is the lower opportunity cost producer. Trade is usually beneficial to both countries even if one has an absolute advantage in the production of both goods that are to be traded. others could be involved over time. The same logic may be applied to groups of individuals or nations. sometimes by the accumulated skills and capital. Mutually beneficial trade occurs between two individuals when each specializes in the activity or occupation for which he or she has a comparative advantage. and technology. and imports the product for which it has a higher opportunity cost. Comparative advantage could be determined by many actions such as the natural resource or climate change. such as worked skills. In other words. or the area for which the opportunity cost of their effort is less. by government assistance. For example. Given any two products.Even in extreme cases where individuals have an absolute advantage in two activities or occupations they will be better off specializing in that activity or occupation for which they are relatively better. a nation will tend to export goods to another nation for which it has a comparative advantage and will import goods for which it has a comparative disadvantage. 3 . education. a nation has a comparative advantage in the product with the lower opportunity cost. This is the activity or occupation for which they have a comparative advantage.

The analysis of trade in goods and services while no factors of production-labor. The effects of allowing for movement of these factors to our analysis. The International movement of productive factors is the movements of labor. iron ore. In the real world. Why do countries have different opportunity costs? They have different endowments of productive resources -warmer climates and longer growing seasons. Human resources can be improved through better educational programs.The terms of trade must be such that both countries lower the opportunity costs of the goods they are getting from the trade. more plentiful natural resources such as oil. New supplies of natural resources can be discovered and developed while existing supplies are better managed. there are movements of capital-called international capital flows. The increase in world trade should result in more efficient use of the world's scarce resources.move between countries. and larger quantities of more sophisticated machinery. 4 . and other factors of production between countries.termed migrationbetween countries. It has been increasing both in amount and in significance.and movement of labor. capital. we will add an important variant of capital movement. and in higher standards of living. or land. Capital resources can be acquired to make the better-trained workers even more productive. more highly educated and skilled workers. and water. World trade is not static. capital. that of foreign directs investment abroad (FDI).

Foreign Direct Investment is the ownership of assets in a country by foreigners where the ownership is intended to provide control over those assets.International factor movements occur in three ways: immigration/emigration. capital flows. Most countries governments appoint this trade barriers and the conventional with full intent behind them is to limit or constantly ban the imports of some specific products. Substitutability of factors and commodities Trade in goods and services can to some extent be considered a substitute for factor movements. Nations frequently restrict immigration. Multinational enterprises manage production or deliver services in more than one country. it is a financial transaction. and foreign direct investment. Which consists into many contents. capital transfers through international borrowing and lending. Instead. 5 . International factor movements also raise political and social issues not present in trade in goods and services. however. and foreign direct investment. as it is with labor mobility. Substitutability and complementarity of foreign and domestic labor International borrowing and lending is another type of international factor movement. the "factor" being moved here is not physical. many industries in the United States are heavily dependent on legal and illegal labor from Mexico and the Caribbean. For example. Tariff and non-tariff barriers can affect countries business in their exports. International labor mobility International labor migration is a key feature of our international economy.

6 . The World Trade Organization was implanted in order to lower the risk of the trade barriers all over the world. Both Tariff and non-tariff barriers can exclusively hurt the national economy in the longer term. the governments are looking to accomplish some or this entire economic objectives: Encouraging domestic production. They even provide shield to those under achieving industries and manufactures are not competitive at all.By demanding trade barriers. Protecting local employees. Increasing revenues. Reducing devastation and interdependent on exports. and to improve transparency and non-discrimination in international trade.

org/1990/03/the-competitive-advantage-of-nations/ar/1 .sg/title/5421a.Reference: International Economics 13th Edition/2011 Robert http://www.php http://www. Carbaugh http://www.htm http://hbr.twnside.investopedia.

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