Introduction

The theory of comparative advantage provides a basis for explaining and justifying international trade in a model world assumed to enjoy free trade, perfect competition, no uncertainty, costless information, and no government interference. The source of a nation’s comparative advantage, however, is the mixture of its own labor skills, access to capital, and technology.

Questions

Watch the following YouTube video Rs 30 crore bribe charge hits Delhi metro (Links to an external site.)

Despite the underlying advantages of the Theory of Comparative Advantage, countries do not appear to specialize in producing only those goods and services that could most efficiently be produced domestically. Provide at least three reasons why governments interfere with comparative advantage and the techniques they may use to enforce their objectives.