How is comparative advantage important for international trade?
If countries specialize in producing the goods in which they have a comparative advantage, they can trade their excess production for different goods that have been more cheaply produced by other countries. This increases the amount of goods and services available to each country. (50.0K) The differences in the opportunity costs of production between countries create different relative prices for the same product. In the above graph, a country that doesn’t trade is constrained in consumption by its own relative prices. If the country trades, it can purchase goods at a lower relative price. The World Trade Organization (WTO), with 142 member countries, is the only global international organization administering rules of trade between nations. The WTO has calculated some of the savings consumers have reaped as a consequence of free trade. See what the WTO thinks your savings have probably been at http://www.wto.org/english/thewto_e/whatis_e/10ben_e/10b04_e.htm. Does everyone gain from tr
