Explain how trade will tend to emerge along the lines of comparative advantage if

Question

Explain how trade will tend to emerge along the lines of comparative advantage if markets are allowed to work freely.

Answer 1

The markets are amazing, in thier simplicity, and complexity.

Where there is an absolute advantage it is simple. Country A makes tires cheaper than country B can, country B will want to import those cheaper tires, and will produce less.

Where the advantage is not absolute, but still comparative, it gets trickier. BUt the same sort of thing happens. Country A makes tires but slightly at more cost than country B, however, country B makes airplanes at far less cost than country A. Country A wants to buy some airplanes, it must make more tires and sell them. More orders for airplanes means country B uses more inputs to produce airplanes, less for other things.