Question

Comparative Advantage laws evolved out of the standard negligence/contributory negligence systems. Briefly explain why comparative advantage is typically preferred and what limitations it still poses.

Answer 1

ANSWER:

GIVEN THAT:

THE COMPARATIVE ADVANTAGE LAWS EVOLVED OUT OF THE STANDARD NEGLIGENCE:

1. Comparative advantage is based on the idea that a country can have an advantage with respect to other countries for the production of a particular good in relation to the production of other goods in the country. 2. A point to note is that it may be costlier for the country to produce all goods in an absolute sense.

3. If all the countries start focusing on the production of goods which they have competitive advantage for,then they can trade with each other to achieve better results that they would producing all the goods on their own.

4. This the the reason why it is preferred.

5. Some limitations of the competitive advantage are:

A. The cost of transportation may outweigh the benefit of competitive advantage

B. The trade can be affected by government authorities.

C. It does not consider dynamic advantage. Eg. A country might become good in the production of a good if it made necessary investments.

D. If a country specializes in producing only those products it has competitive advantage in, it might lead to diseconomies of scale.