Question

Compare and contrast autarky and trade. How does trade help nations attain a higher production possibilities frontier? According to David Ricardo and Heckscher-Ohlin how is the comparative advantage accomplish the aforementioned?

Answer 1

in a situation of autarky or no trade situation a country produce all the products there is demand for with there limited inputs and limited endowments and technology. but when trade takes place a country can purchase the goods from the other countries in which they have absolute and comparative dis advantage in production. this way a country saves a lots of time and inputs and employs it in the production of goods it has absolute advantage in and by that way it enjoys more production and more wealth. if a nation produces more by using there all the inputs for one specialised product then output auto matically increases and makes the country to achieve a higher production possibility frontier.

as we know ricardo in his theory of comparitive advantage said that when a country has less opportunity cost in producing a certain product and here the country produces more of that and trades it with other and gains from trade. heckscher-ohlin in there theory talked about factor endowment and they said that a country should produce and export the commodity which uses its abundant and cheap factor of production and import the one in which it has no endowment.in both the theories they have talked about how a country can gain from international trade and be better off.