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Economic Theory Of Comparative Advantage

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At the very outset, trade refers to the transfer of the ownership of commodities and services from one individual, firm or entity to another in exchange for other commodities and services, or money. The economic theory of Comparative Advantage involves assessing the potential gains from trade for individuals and other economic entities, including firms and nations, that arise from differences in their resource or factor endowments and technological know-how and progress. To put it simply, an economic entity has a comparative advantage over another entity if it is able to produce a particular commodity or service at a comparatively lower cost, specifically, at a lower relative opportunity cost. David Ricardo first illustrated the importance …show more content…

The top export goods to Canada from India include textiles, carpets, cotton yarn and marine productsCanada produces over 25 million metric tonnes of nitrogen, phosphate and potash fertilizer annually and exports more than 20 million tonnes to more than 70 countries all over the world. The growing fertilizer industry contributes approximately $12 billion annually to Canada’s Gross Domestic Product and employs more than 12,000 Canadians. Exporting fertilizer to India therefore, makes use of the enormous potential for the Canadian fertilizer industry and simultaneously provides for the rising demand for fertilizer products in India and the rest of the world. Canada, thus, has a comparative advantage over India with respect to the fertilizer industry.Indian export of spices including pepper, cardamom, chili, cumin, fenugreek, nutmeg, tamarind and fennel have been able to record vast gains in both the volume of exports as well as the value. Export of Indian spices has displayed significant growth during the last five years, registering an annual average growth rate of approximately 12% in volume and 21% in value; these figures emphasize the crucial position of India in the World Spice Trade. During the years 2013-14, a total of 8,17,250 tonnes of spices and spice …show more content…

Therefore, there is no unnecessary wastage of resources and existing resources are utilized to the fullest degree. Secondly, export of fertilizer and spices from Canada and India respectively, enable each country to gain a share in the global market for the goods that they

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