COMPARATIVE ADVANTAGE.

Hello steemains, we start by showing the benefits of trade when there are international differences in the opportunity cost of goods.
The opportunity cost Of a good is the quantity of other goods that must be sacrificed to make one more unit of that good. .

Suppose a closed economy with given resources can make video records or shirts.
The more resources are used to make videos, the less resources can be used to make shirts. The opportunity cost of videos is the quantity of shirt output sacrificed by using resources to make videos instead of shirts.
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Opportunity cost tell us about the relative costs of producing different goods. We now develop a model in which international differences in relative production cost determine the pattern of international trade.
The model demonstrates of law of comparative advantage.
The law of comparative advantage states that countries specialize in producing and exporting the goods that they produce at a lower relative cost than other countries.
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There are many reasons why opportunity costs or relative cost may differ in different countries we begin a very simple model in which technology or productivity is the source of the difference. Suppose there are two countries, the United States and the U.K., producing two goods, video recorders and shirts. We pretend the labour is the only factor of production and there are constant returns to scale.