The document discusses the theory of comparative advantage and its advantages and disadvantages. The key advantages are that specialization will increase total world production through more efficient production, reduced production costs through greater efficiency, and technological advancement as countries develop expertise in their specialized areas. The key disadvantages are that raw materials are cheaper than manufactured goods, so countries specializing in raw materials may not benefit equally; developed countries control prices and can sell manufactured goods expensively while buying raw materials cheaply; and less developed countries were often influenced by colonial powers to specialize in raw material production rather than choosing it freely.

1. Theory of comparative
advantage
Advantages
 It is believed that there will be increased total world
production due to specialisation which makes
production very efficient. For example, it is believed
that with specialisation the world will get more
agricultural products from the farming countries, more
minerals from the mining countries, more
manufactured goods from manufacturing countries
etc.
 It is again believed that there will be reduced
production costs due to increased efficiency in
production resulting in lower prices of goods and
services.
 This is development of expertise and technology in
the area of specialisation by countries. This means
that each country will develop production techniques
and equipment for their production activity so
technological advancement will be the result.
disadvantages
 Raw materials are cheaper than
manufactured goods so if some countries
concentrate on production of raw materials
which are cheap whilst others concentrate
on manufacturing expensive goods they
cannot benefitequally from international
trade.
 Developed countries control prices, so even
if production of manufactured goods is
lowered by specialisation they still sell their
goods expensively and yet they continue to
buy raw materials from less developed
countries cheaply.
 history has shown that countries which
produce raw materials, especially Less
Developed Countries (LDCs) did not freely
choose to concentrate on those products but
were influenced to do so by colonial powers.