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Chapter 2: Problem 5

A columnist for Forbes argues, "Even if China is always better than Spain at producing textiles, if the best thing that Spain could be doing is textiles, then that's what Spain should be doing." a. What does the columnist mean by "China is always better than Spain" in producing textiles (which include clothing, sheets, and similar products)? Was the columnist arguing that China has an absolute advantage over Spain in producing textiles, a comparative advantage, or both? Briefly explain. b. The columnist noted that, in fact, Spain exports significant quantities of textiles. If his description of the situation in China and Spain is accurate, briefly explain how Spanish firms are able to export textiles in competition with Chinese firms.

Short Answer

Expert verified
The columnist's argument suggests that China might have an absolute advantage in textile production, which means they can produce more efficiently or at lower cost. However, we can't definitively claim if this advantage is absolute or comparative without additional context. Furthermore, Spain can still export textiles despite China's advantage because Spain may have a comparative advantage in textile production. This means Spain's opportunity cost to produce textiles could be lower than other goods they could produce, making textiles their most efficient product.

Step by step solution

01

Understanding the Concepts

Firstly, it's important to understand two key concepts in international economics - absolute advantage and comparative advantage. An absolute advantage means being able to produce more of a good with the same resources as another country. A comparative advantage refers to a country's ability to produce a certain good at a lower opportunity cost than other countries.
02

Analyzing the Statement for Part A

The statement 'China is always better than Spain in producing textiles' suggests that China may have an absolute advantage. This implies China can produce textiles more efficiently or at a lower cost. The columnist does not specify whether this advantage is absolute or comparative, so without additional context we cannot definitively say if China has one, the other, or both.
03

Applying the Concept to the Situation for Part B

Even if China has an absolute advantage in textile production, this does not mean it's the best thing for them to do. The concept of comparative advantage suggests that even if China can produce textiles more efficiently, if they have even greater efficiencies in producing another good, they should focus on that and import textiles. This might be where Spain comes in. Their best possible area might be in textile production. Even if they are less efficient than China, if it is their most efficient area, they have a comparative advantage and thus should focus on textiles.

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