Economics Year 13 revision Day 24 - Comparative Advantage
On day 24 of the Year 13 Recap we review the trade theory of comparative advantage and how it can be used to explain trade patterns around the world.
Ever wondered why the UK has a specialised focus on providing and selling services, whilst China has an innate ability to produce heavily manufactured goods? The theory of comparative advantage, to some degree, explains why countries focus and trade the surplus of the goods they are most efficient at producing.
The theory is all built upon the concept of opportunity cost. The theory stipulates that if one country can produce a good at a lower opportunity cost than its trading partners it should focus on producing that good. The revenue derived from selling those goods abroad should then be used to buy goods from other countries. If countries put politics aside and trade based on this theory there should be mutually beneficial trades to take advantage of. However, as we all know, when it comes to trade often politics gets in the way!
Here Jack guides you through the revision slide on comparative advantage: