Jamaica exports bauxite to Canada and imports machinery from the United States. Which economic concept explains why Jamaica does not produce all goods domestically?

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Question

Jamaica exports bauxite to Canada and imports machinery from the United States. Which economic concept explains why Jamaica does not produce all goods domestically?

Accepted Answer

Comparative advantage — Award 1 mark for recognising that countries specialise in producing goods where they have the lowest opportunity cost. A is incorrect — absolute advantage refers to producing more with the same resources, but does not fully explain trade patterns. C describes a trade imbalance, not a reason for trade. D refers to a policy of replacing imports with domestic production.

Answer

Absolute advantage

Answer

Comparative advantage

Answer

Trade deficit

Answer

Import substitution

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