What is the source of comparative advantage according to factor proportions theory?

Answer 1

Country A has a comparative advantage over country B in the production of product X rather than product Y if country A consumes less resources in the production of X than Y, in comparison to country B. For example, if country A consumes 12 units or resources to produce 1 unit of product X and consumes 18 units of resources to produce 1 unit of product Y, then country A's X:Y factor (resource) proportion or ratio is 2:3. If country B's X:Y factor proportion or ratio is 1:2, than this means that country A has a comparative advantage in the production of product X because 1:2 (which equals 0.5) is less than 2:3 (which equals approx. 0.67). Thus, in a 2-country, 2-product simplified world model, country A should specialize only in the production of product X and country B in the production of product Y, and both countries should internationally trade with each other to obtain the product they do not produce locally.

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