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Can different endowments of factor resources fully explain countries differences in comparative costs.
Member rating: No Rating | Words: | Submitted: Fri Jan 28 2005
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Can different endowments of factor resources fully explain countries differences in comparative costs. Just as firms specialise in producing different types of goods so to do countries. This allows them to benefit from their location, capital equipment and others assets they own. Countries intend to produce more of certain goods than is needed for domestic consumption in order for these goods to be exported. A large majority of capital gained from exporting is then used in order to buy imports. These are usually products which the country cannot produce domestically or that it produces very little of. A country must identify which products it should export and which it should import as many countries have the ability to produce similar products. The law of comparative cost advantage can be used in order to solve this problem. This law was a theory of Economist David Ricardo who adopted Smiths idea of a division...
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