Question

Qavan Qrresh prahne meffeet His trite ere

Answer 1

According to Adam smith's, Wealth of Nation, Theory of Comparitive advantage says that one country would have advantage over other if it has ability to produce same amount of goods with less resources than others. Theory also says that country/company should manufacture a good which it has necessary expertise and materials to produce than to inefficiently allocate your resources to production of good that some other country can produce for les overall budget. For example - Suppose company X can manufacture 5unit/day with 5 employees and company Y can manufacture 10unit/day with 5 employees. Assuming that both the companies paid equally, company Y would have an advantage over company X in manufacturing the good.

    Comparitive advantage in the present day mostly connected to David Ricardo theory 'model of trade' which describes a two country, two good, one factor of production, usually labour. Every country has some specialisation in manufacturing a particular good at lesser cost than other country. Let, country A is basically a garment industry and cost of production is less. Thus, there is no point if country B manufacture same cloth in thier country at higher cost. It would be economical for the country B to buy from country A and vise-versa. This way both countries benefits. Thus, nowadays Theory of David Ricardo prevailed and appreciated.