Concept explainers
True or False: The source of
To state: Whether the statement stating that the source of comparative advantage must be natural elements like climate and mineral is true or not.
Explanation of Solution
The statement is not true i.e. false. The source of comparative advantage may be natural element but it is not a compulsion. The natural elements like climate and mineral deposits are one of the source of advantage but not the only source. It has many other sources like external economies, geographical location, etc.
Comparative Advantage: Comparative advantage is similar to opportunity cost. The conditions of opportunity cost should be followed for gain in trade under comparative advantage. Under this, the cost of production of good is analyzed and compared with other good.
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