Comparative advantage —how nations can gain from international trade
This chapter provides how the possession of an absolute advantage in production of an item such as freshwater can sometimes provide a rationale for nations to engage in trade. It examines that relative differences in opportunity costs—which govern comparative advantage in the production of a good or service—much more commonly provide this rationale. The chapter emphasizes two key assumptions underlying examinations of production possibilities and opportunity costs. First, assumes the availability of a given technology in each nation considered. Second, assumes that each country had a fixed set of accessible resources. Given these two assumptions, every nation's production possibilities did not change during the time horizon to which the examples applied. Until the mid-twentieth century, many Nepalese village blacksmiths were able to export handcrafted copper containers to residents of other nations. These assumptions only applied to a short-run time horizon. Countries' production possibilities do not remain unchanged over time.