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Why might intra-industry trade seem surprising

from the point of view of comparative advantage?

Short Answer

Expert verified

Intra-industry trade may seem surprising from the point of view of comparative advantage because they are importing the same good they are exporting. In theory with the comparative advantage, they would not need to import.

Step by step solution

01

Step 1. Definition

Intra-industry trade is the exchange of alike products belonging to the same industry.

Comparative advantage is the ability to produce a good or service at a relatively lower opportunity cost than others.

02

Step 2. Explanation

In the comparative advantage principle, the nations which trade with each other for gains should be differently skilled but in Intra-industry trade, the trade occurred between the countries that have identical types of resources.
According to comparative advantage, it wouldn't make sense for a country to import a good it exporting, however, because of competition, diversity of products, and quality preferences, intra-industry trade occurs.
Example: Many countries manufacture cars, so why would countries that are efficient car makers import cars from other countries? To have a higher diversity of products and qualities.
Comparative advantage works in a one-dimensional scenario, where exchanged goods are identical.

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