Tuesday, January 17, 2006

Comparative Advantage Caveat

In case this wasn't mathematically obvious, you can't have comparative advantage in more than one good in a two good scenario. If country A has comparative advantage in good X, then country B has comparative advantage in good Y. However, there can be a case in which neither country has any comparative advantage if the opportunity costs are the same in both countries. In this case there are no potential gains from trade.


Post a Comment

<< Home