Question

1. Explain the comparative advantage and trade.
2. Discuss the principle of increasing opportunity costs.
3. Explain how and what causes the production possibilities curve to shift.
4. Compare and contrast between labor and other factors of production.
5. Explain how economies gain from trade.

Answer 1

The comparative advantage can be defined as the situation when a certain country is in a situation to produce goods and services at a relatively lower opportunity cost than the other countries.

The principle of increasing opportunity costs indicates that if the production of one product is increased continuously, then there will be a situation when the production of every next unit will result in greater opportunity cost

The shift in the production possibility curve indicates that there will be a change in the production unit if the change in the input is made. The shift in production possibility curve can be caused due to change in technology, change in resources and labor forces

The different factors of production are divided into 4 categories which are land, labor, capital, and entrepreneurship. Land indicates about the natural resources while labor indicate about the manpower, Capital includes the funds required to start and maintain the production while entrepreneurship deal with the skill and processes

Trade facilitate the foreign exchange than can be used to buy other products and service. Trade also provides the chance of new employment that will provide the earning and funds to the employees and this can be further used to generate domestic demand