To determine comparative advantage, we need to compare the opportunity costs of producing each good in each country. Opportunity cost is what you give up to produce something else. It's calculated as the amount of one good that must be sacrificed to produce one unit of another good.

Country A:

• Opportunity cost of 1 unit of Wheat = 6/4 = 1.5 units of Textiles
• Opportunity cost of 1 unit of Textiles = 4/6 = 0.67 units of Wheat

Country B:

• Opportunity cost of 1 unit of Wheat = 12/8 = 1.5 units of Textiles
• Opportunity cost of 1 unit of Textiles = 8/12 = 0.67 units of Wheat

Country C:

• Opportunity cost of 1 unit of Wheat = 4/2 = 2 units of Textiles
• Opportunity cost of 1 unit of Textiles = 2/4 = 0.5 units of Wheat

Analysis:

• Wheat: Country A has a lower opportunity cost of producing wheat (1.5 units of textiles) compared to Country B (also 1.5 units of textiles) and Country C (2 units of textiles). Therefore, Country A has a comparative advantage in wheat production.
• Textiles: Country A has a lower opportunity cost of producing textiles (0.67 units of wheat) compared to Country B (0.67 units of wheat) and Country C (0.5 units of wheat). Therefore, Country A has a comparative advantage in textiles production.

Conclusion: Country A has a comparative advantage in both wheat and textiles production because it has the lowest opportunity cost for producing both goods compared to the other two countries. This suggests that Country A would benefit most from specialising in the production of both wheat and textiles and then trading with the other countries.

Specialisation by countries creates a high degree of economic interdependence. Countries rely on each other for goods and services they cannot produce efficiently themselves. This interdependence fosters global supply chains and interconnected financial markets. A disruption in one country's economy can therefore have ripple effects across the world.

Argument for Interdependence (Benefits):

• Access to a wider range of goods and services
• Potential for economic growth through trade
• Development of global supply chains
• Increased efficiency and productivity

Example: The global automotive industry No single country produces all the components needed for a car. Each country specialises in different parts (e.g., Germany in engines, Japan in electronics, USA in tires). This interdependence means that a disruption in any one of these industries can affect the entire automotive sector.

Argument for Vulnerability (Risks):

• Exposure to economic shocks in other countries
• Dependence on imports for essential goods
• Potential for trade wars and protectionism
• Risk of supply chain disruptions

Example: The COVID-19 pandemic The pandemic disrupted global supply chains, highlighting the vulnerability of countries that rely heavily on imports from specific regions. Lockdowns and travel restrictions impacted production and distribution, leading to shortages of essential goods.

Conclusion: While specialisation offers significant economic benefits, it also creates vulnerabilities. Countries need to manage their interdependence carefully by diversifying their economies, building strong domestic industries, and fostering stable international relations to mitigate the risks associated with specialisation.

Countries specialise in the production of certain goods and services primarily to achieve economies of scale. This means that by producing a larger quantity of a specific good, the average cost per unit decreases. This is because fixed costs are spread over more units. Specialisation also allows for the development of specialised skills and expertise within a country's workforce, leading to higher productivity and quality. Furthermore, it can improve efficiency by focusing resources on areas where a country has a comparative advantage.

Advantages of Specialisation:

• Increased productivity and efficiency
• Lower average costs
• Higher quality goods and services
• Greater export opportunities

Disadvantages of Specialisation:

• Vulnerability to economic shocks in the specialised industry (e.g., a decline in demand for a particular export).
• Potential for unemployment in industries that are not specialised.
• Dependence on other countries for goods and services not produced domestically.
• Can lead to a lack of diversification and resilience in the economy.