Comparative advantage can result from differences in labor productivity.

Question

Quizplus · Accepted Answer

According to the theory of comparative advantage, countries should specialize in producing goods or services they can produce more efficiently (with a lower opportunity cost) compared to other countries. Differences in labor productivity are one of the factors that can lead to comparative advantage. When a country has a higher labor productivity in a particular industry, it can produce more output with the same amount of resources (including labor) compared to other countries. This allows the country to export the surplus production and import goods or services from other countries where they have a comparative advantage. Therefore, differences in labor productivity can play a key role in determining trade patterns and comparative advantage.

Comparative Advantage Can Result from Differences in Labor Productivity