If a Comparative Advantage Implies That a Country Can Produce

question 49

Essay

If a comparative advantage implies that a country can produce a product at a lower opportunity cost than another country then why do we see two countries often trading the same goods? For instance, for most agricultural products the U.S. has a comparative advantage. Japan, one of America's largest trading partners has a comparative advantage in the production of most economy cars. Explain what is going on here when we still see the U.S. exporting cars to Japan and the U.S. importing some foods from Japan.

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Definitions:

Entry Barriers

Entry Barriers are obstacles that make it difficult for new entrants to enter an industry, protecting existing firms from competition.

Oligopoly

An oligopoly is a market structure dominated by a few large firms, leading to limited competition and possibly collaborative behavior to control prices and market share.

Increasing Returns To Scale

Long-run average total cost declines as output increases (also referred to as economies of scale).

Barriers To Entry

Obstacles that make it difficult for new competitors to enter a market, such as high start-up costs or strict regulations.