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Chapter 9: Problem 2

What is meant by a country specializing in the production of a good? Is it typical for countries to be completely specialized? Briefly explain.

Short Answer

Expert verified
Specialization is when a country focuses its resources on producing certain goods or services more efficiently than other countries. It's not typical for countries to be completely specialized, though, as this would present economic and strategic risks - most countries have a diversified economic structure.

Step by step solution

01

Understanding Specialization

Specialization, in the context of economics, refers to when a country, individual, or company focuses on producing a specific type of item or service to maximize efficiency. For a country, it means focusing resources on producing certain goods or services that it can produce more efficiently (due to factors like technology, climate, workforce skills etc.) than other countries. This allows countries to take advantage of efficiencies gained from economies of scale and produce those goods or services at a lower opportunity cost.
02

Applying Specialization to Country Level

In practice, multiple factors determine what goods or services a country will specialize in. Factors like the availability of resources, workforce skill, technology, climate, and many others shape what a country can produce more efficiently. For example, Saudi Arabia specializes in oil production because it has vast petroleum reserves. New Zealand specializes in agricultural products because of its favorable climate for livestock and crop production.
03

Assessing Typicality of Complete Specialization

It's not typical for countries to be completely specialized. Complete specialization would mean that a country only produces one good or service and imports all other goods and services it needs, which can present significant economic and strategic risks. Diversification helps to mitigate these risks, enabling a country to be self-reliant in various sectors and less exposed to global market fluctuations or trade disruptions affecting a single sector. Plus, countries may have a wide range of resources or advantages that make them effective in producing multiple types of goods and services. Therefore, while specialization is a common economic strategy, complete specialization is rare.

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Most popular questions from this chapter

An article in the New Yorker stated, "The main burden of trade-related job losses and wage declines has fallen on middle- and lower-income Americans. But ... the very people who suffer most from free trade are often, paradoxically, among its biggest beneficiaries." Explain how it is possible that middle-and lower-income Americans are both the biggest losers and at the same time the biggest winners from free trade.

A political commentator makes the following statement: The idea that international trade should be based on the comparative advantage of each country is fine for rich countries like the United States and Japan. Rich countries have educated workers and large quantities of machinery and equipment. These advantages allow them to produce every product more efficiently than poor countries can. Poor countries like Kenya and Uruguay have nothing to gain from international trade based on comparative advantage. Do you agree with this argument? Briefly explain.

At one time, Eastman Kodak was the world's largest producer of photographic film, employing nearly 145,000 workers worldwide, including thousands at its headquarters in Rochester, New York. The firm eventually laid off most of those workers because its sales declined as it failed to adjust to digital photography as quickly as many of its foreign competitors. A member of Congress from Rochester described the many new firms that were now located in buildings that were formerly owned by Kodak. A New York Times columnist concluded, "which, of course, is precisely the way globalization is supposed to work." Briefly explain what the columnist meant. Do you agree with his conclusion?

A student makes the following argument: Tariffs on imports of foreign goods into the United States will cause the foreign companies to add the amount of the tariff to the prices they charge in the United States for those goods. Instead of putting a tariff on imported goods, we should ban importing them. Banning imported goods is better than putting tariffs on them because U.S. producers benefit from the reduced competition, and U.S. consumers don't have to pay the higher prices caused by tariffs. Briefly explain whether you agree with the student's reasoning.

Patrick J. Buchanan, a political commentator and former presidential candidate, argued in his book on the global economy that there is a flaw in David Ricardo's theory of comparative advantage: Classical free trade theory fails the test of common sense. According to Ricardo's law of comparative advantage \(\ldots\) if America makes better computers and textiles than China does, but our advantage in computers is greater than our advantage in textiles, we should (1) focus on computers, (2) let China make textiles, and (3) trade U.S. computers for Chinese textiles.... The doctrine begs a question. If Americans are more efficient than Chinese in making clothes \(\ldots\) why surrender the more efficient American industry? Why shift to a reliance on a Chinese textile industry that will take years to catch up to where American factories are today? Do you agree with Buchanan's argument? Briefly explain.
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