Thursday, 10 July 2008

If a country has the comparative advantage in producing a product, then must that country also have the absolute advantage in producing that product?

No! That's the
really fascinating thing about comparative advantage; you can have comparative advantage in
something without having absolute advantage in anything---you can be worse than everyone else at
doing literally everything, and it still makes sense for you to do some things because you're
less worse at that than you are at everything else.

For
a surprisingly realistic example, let's compare the United States and Vietnam. Furthermore for
simplicity let's pretend there are only two goods in the world, shoes (which you can think of as
standing in for low-tech textiles) and cars (which you can think of standing in for high-tech
capital-intensive manufacturing). Nothing else, just shoes and cars.

Now
suppose that the United States has the...





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