The economic liberal view of trade as a positive sum game is based in part on the theory of comparative advantage. Define comparative advantage and discuss its relationship to international differences in opportunity costs. Why do all nations supposedly gain when trade takes place according to comparative advantage?

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The Answer is Comparative advantage is a theory that suggests that countries should specialize in producing goods and services that they can produce at a lower opportunity cost than other countries. Opportunity cost refers to the value of the next best alternative that is given up when a choice is made. In the context of international trade, comparative advantage is based on the idea that different countries have different opportunity costs for producing goods and services.

For example, if Country A can produce cars at a lower opportunity cost than Country B, and Country B can produce computers at a lower opportunity cost than Country A, then it makes sense for Country A to specialize in producing cars and Country B to specialize in producing computers. By doing so, both countries can trade with each other and benefit from each other's comparative advantage, leading to a more efficient allocation of resources and higher overall production.

According to the theory of comparative advantage, all nations gain from trade because it allows them to specialize in producing the goods and services that they can produce most efficiently, while importing goods and services that other countries can produce more efficiently. This leads to a more efficient allocation of resources, higher overall production, and a wider variety of goods and services available to consumers. In essence, trade based on comparative advantage allows countries to maximize their production and consumption possibilities, leading to a positive sum game where all nations can benefit.

The Economic Liberal View of Trade as a Positive Sum