“There are two types of trade liberalization, which are absolute advantages and comparative advantages” . Absolute advantage can be referred to the ability of the country to produce a certain good which more efficient than another country while comparative advantage can be referred to a country that has more advantage in the production of a good or service, or in other word where the opportunity cost of …show more content…
Only one of the goods would work. Ricardo showed that the specialization good in each country should be that good in which the country had a comparative advantage in production. To identify a country 's comparative advantage good requires a comparison of production costs across countries. However, one does not compare the monetary costs of production or even the resource costs (labor needed per unit of output) of production. Instead one must compare the opportunity costs of producing goods across countries.
For example, Country A can produce a cloth at a lower opportunity cost than Country B, thus country A is said to have a comparative advantage in the production of a cloth. “The opportunity cost of cloth production is defined as the amount of wine that must be given up in order to produce one more unit of cloth”. It can be argued that the UK has a comparative advantage in the production of fabric from Portugal if it should stop making the wine in order to produce one more unit of the cloth than the amount of wine that Portugal had to give up to produce one more unit of …show more content…
However, Anglia can still import cars and motors from Machiana and Maciana can enjoy the cheaper boats and fish from Anglian. Thus, it shows that free trade will still happen with enjoyment of lower opportunity cost of boats than before. The issue is whether the Anglia can sell its salmon in the nearby-industrialized nation of Factorum.
There was a multilateral agreement regulating international trade which known as The General Agreement on Tariffs and Trade (GATT). The purpose of GATTS according to its preamble was the "substantial reduction of tariffs and other trade barriers and the elimination of preferences, on a reciprocal and mutually advantageous basis. The GATT concerns on two types of measures, which are tariff measure and non-tariff measure. However, in this problem, it concerns with non-tariff measure.
There are several types of non-tariff barriers to trade, which include import quotas, special licenses, unreasonable standards for the quality of goods, export restrictions, and limiting the activities of state