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In Ricardo's theory of comparative advantage, the main source of comparative advantage is: 1. resource supplies...

In Ricardo's theory of comparative advantage, the main source of comparative advantage is:

1.

resource supplies
2.

human capital
3.

technology
4.

the capital-intensity of production
5.

the labor-intensity of production
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Answer #1

The main source of comparative advantage is-“resource supplies in Ricardos theory of comparative advantage Comparative advantage is a dynamic concept meaning that it changes over time This theory of comparative advantage, also called comparative cost theory, is regarded as the classical theory of international trade According to the classical theory of international trade, every country will produce their commodities for the production of which it is most suited in terms of its natural endowments climate quality of soil, means of transport. capital, etc. It will produce these commodities in excess of its own requirement and will exchange the surplus with the imports of goods from other countries for the production of which it is not well suited or which it cannot produce at all Thus all countries produce and export these commodities in which they have cost advantages and import those commodities in which they have cost disadvantages countries can have an advantage because they are richly endowed with a particular natural resource. For example, countries with plentiful oil resources can generally produce oil inexpensively. Because Saudi Arabia produces oil very cheaply, it holds a comparative advantage in oil, and it exports oil in order to finance its purchases of imports. Similarly, countries with large forests generally are the major exporters of wood, paper, and paper products. The supply available for export also depends on domestic demand. Canada has large quantities of lumber available for export to the United States, not only because of its large areas of forest but also because its small population consumes little of the supply, leaving much of the lumber available for export. Climate is another natural resource that provides an export advantage. Thus, for example, bananas are exported by Central American countries-not Iceland or Finland

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