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Chapter 9: Problem 6

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.

Short Answer

Expert verified
No, the argument is not entirely correct. While rich nations may hold an absolute advantage in various sectors, they still face limited resources. Poor nations, on the other hand, can have a comparative advantage in specific goods due to their unique factors, such as certain natural resources or workforce characteristics. Therefore, both rich and poor countries can gain from trade based on comparative advantage by trading goods in which they have the lower opportunity cost.

Step by step solution

01

Understanding Comparative Advantage

Understanding the concept of comparative advantage is necessary. Comparative advantage is a fundamental concept in international trade, stating that a country can benefit from specializing in producing and trading goods in which it has a lower opportunity cost. In other words, a country with a comparative advantage produces goods at a lower relative cost than other nations.
02

Analyzing the Case of Rich Countries

The commentator's argument holds that rich countries like the United States and Japan, equipped with educated workers and advanced technology, can produce any product more efficiently, hence having a comparative advantage in every sector. However, it confuses the concept of absolute advantage (being the most efficient producer) with the comparative advantage (having the lower opportunity cost). A rich country might have an absolute advantage in producing multiple goods, but it still has to allocate its resources efficiently.
03

Exploring the Potential of Poor Countries

The argument stated that poor countries like Kenya and Uruguay have nothing to gain from international trade based on comparative advantage. But it should be kept in mind that even if they aren't as efficient as richer nations, they may still produce certain goods with lower opportunity cost due to factors such as climate, natural resources, or workforce characteristics. Therefore, these countries can indeed benefit from international trade if they specialize in and trade goods in which they have a comparative advantage.
04

Conclusion

We arrived at the conclusion after a thorough understanding and analysis of the concept of comparative advantage, suggesting that every country, regardless of its economic status, can leverage international trade based on comparative advantage by identifying and capitalizing on goods where it incurs the lowest opportunity cost.

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Most popular questions from this chapter

The following data summarize the trade between Canada and the United States in 2015 and 2016 . In both years, the value of Canada's exports to the United States exceeded the value of U.S. exports to Canada. Can we conclude that foreign trade between the two countries benefited Canada more than it benefited the United States? Briefly explain.

In 2017 , shortly after President Trump took office, the U.S. Department of Commerce considered imposing tariffs on European steel companies it accused of dumping steel on the U.S. market. An article in the Wall Street Journal quoted Secretary of Commerce Wilbur Ross as asserting, "A healthy steel industry is critical to our economy and manufacturing base, yet our steel industry today is under assault from foreign producers that dump and subsidize their exports." What is dumping? If the United States imposes tariffs on imports of steel from Europe, briefly explain who is likely to gain and who is likely to lose.

What is dumping? Who benefits and who loses from dumping? What problems arise when anti-dumping laws are implemented?

The United States produces beef and also imports beef from other countries. a. Draw a graph showing the demand and supply of beef in the United States. Assume that the United States can import as much as it wants at the world price of beef without causing the world price of beef to increase. Be sure to indicate on your graph the quantity of beef imported. Assume that the world price of beef is lower than the U.S. price. b. Now show on your graph the effect of the United States imposing a tariff on beef. Be sure to indicate on your graph the quantity of beef sold by U.S. producers before and after the tariff is imposed, the quantity of beef imported before and after the tariff, and the price of beef in the United States before and after the tariff. c. Discuss who benefits and who loses when the United States imposes a tariff on beef.

Every year, the Gallup Poll asks a sample of people in the United States whether they believe foreign trade provides "an opportunity for economic growth through increased U.S. exports" or whether they believe foreign trade represents "a threat to the economy from foreign imports." The following table shows the responses for 2 years. a. Do you believe that foreign trade helps or hurts the economy? (Be sure to define what you mean by "helps" or "hurts.") b. Why might the general public's opinion of foreign trade be substantially different during an economic recession, when production and employment are falling, than during an economic expansion, when production and employment are increasing? c. Typically polls show that people in the United States under 30 years of age have a more favorable opinion of foreign trade than do people age 65 and over. Why might younger people have a more favorable view of foreign trade than older people?
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