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international economics. This means that sources of comparative
advantage may change (Hill and O’Sullivan, 2004).

3.5.7 Comparative advantage and production theory

The comparative advantage theory offers a different explanation for
comparative cost differences; however, it is still dominated by supply

conditions. The model suggests that the combination of capital and labour
used to produce a given unit of goods is the same (identical production
functions), and it is assumed that both capital and labour are qualitatively

the same. At this point McDonald and Burton (2002, pp. 47–49) ask how
comparative cost differences arise. The theory explains that each country

is endowed with different proportions of production. If the prices of factors
reflect their relatively scarcity, then abundant factors will be relatively

cheap and scarce factors relatively expensive. From this, it follows that a
country will have a low comparative cost and therefore a comparative
advantage in the production of the goods requiring relatively more of its

abundant (cheap) factor. Conversely, it will have a comparative
disadvantage in the production of the goods requiring relatively more of its

scarce factor. Therefore, the essence of the theory is that a country will
have a comparative advantage in, and will export goods that use relatively
intensively its abundant factor, and import goods that use relatively

intensively the factor with which it is least endowed. The new trade theory
argues that there are gains to be had from specialisation and increasing

economies of scale; that those companies first reaching the market can
create barriers to entry from others; and that government may have a role
to play in assisting its home-based companies. A first mover advantage is

the economic and strategic advantage gained by being the first company
to enter an industry (McDonald and Burton, 2002, p. 48)

3.6. The practice of international trade

According to Woods (2001, pp. 32–33) the support for free trade and the

exploitation of comparative advantage does not mean a world free of trade