Explanation of law of comparative advantage

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Reference no: EM1313362

1. The law of comparative advantage recommends that countries specialize in those products in which they have a comparative advantage, not an absolute advantage. How can a country identify the products and services in which it has a comparative advantage so that it can encourage the development of those industries?

2. During the middle years of this decade, the exchange rate of the U.S. dollar has declined against the currencies of its major trading partners. You would expect this to result in a corresponding increase in U.S. dollar denominated import prices from those trading partners. U.S. dollar import prices, however, often rise less than the increase in the currency value of the exporter. Why?

3. Free trade initiatives argue against tariffs, quotas, and any other barriers to trade. The rush of imports from countries that have a comparative advantage, however, meets with resistance from domestic industries threatened by those imports. As a production manager who understands the academic argument for free trade working in an industry threatened by cheaper imports, how do you react?

Reference no: EM1313362

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