product

If a country can produce a product efficiently but there is no domestic market for that product, how can that country gain by producing that product?

200 word minimum No Wiki, no dictionary.com, please cite all work.

(2012). International economics. (Vol. 1, pp. 45-52). The McGraw-Hills Companies.

In-text citation

lnternational conomics, 15th Edition 45

Tfhv Everybody Tra CS;
ilcmparative Advan ag*

rotluct.’i’hat attitil”sts
but oltl1,’ indirccti.v

lrel.ircss*ei sotuc t;thcrs. i’:’ttr iltt iltrir’rslt’v rvltit cxpa*dl*g producti n, il,ltctc tio lltc
atltli-

tional resorr{ces colllc h”onr’l For a slrrinking iltdiistry. ri’hat ira

l hnpter” 2 exanrineii international trade lbcrising on a siilgle
h*lpcd alls\iief sr.rlnc ntajttr tlirestions about intertlational tra

l},; l*nger nr’eelerl’.] ll cousur:rel’s ilclease or clecreasc lltc’ tiua
praciuc:t”

“ltt
dctttanil l’ci r”rther prodLl

Ftrll anal.vsis ol ititernalional trade r*qitir*s coltsidcrratton
Y*i lilr cttftlL’ccollonty is r”cr-v c6ltiplex- -it c6ttsisls olfhottsa
vilrious resoul’ces neetleii ttl proc{ttcrl thetti. I”ortulately’ lve cail

cuitsitlcl’ingr itit ec$llolll-Y cottlposeri r f’jusL tu’* protlucl:l’ I.trr
j

ltroiluct earr be e,rpolte'{ iittc’l the ot}tei: itt’rporttcl. Tiris
t\l’o-plo{

xit ftse ntial ieafiit’e of inlet.naiional tradc: A cttuntrl” tenrls tc i;e

pens to the l’e$oriLces
i11, dettriinclcd cl one
^’)5.

lhc eltire ecanoll”*l
of prodi.tcts and thc
in nrair:t insights tr1″

lernati0lliii lratlcr. one
rct cconiltlrv cailtillcS
net exporttlt’ of scxtle’

urt ol’ a tu.ro-Pt’orittcl
rs: $,’h-v rio eoutttrries

ery pctstlrl–fincl rt
{bLrv ) ctl:el thl;lgs’?

i elopcd as h* hrattlerl

aclvatttage lllotvs tts
tirait Adanr Siititir’s

plociLrcts attd a net intporiel’it1’others.
-Ihis

r:haptei’ bcgins tltir exantinatiixt trf tlte rit:net”;t1

ilctlilr)ln-v. We fccr.ls $n fh* llrst i}f ou| ltrul’ h:tsir: tri+ile
trirrlc’.’ In irct” rl’1r5, docs i:r’erytrod-v ‘ ‘ev*rv eotllltl’v as
rvcrthrvhile to 1tt’or!uce alici exllort {se11) sonle thirrgs and

We prt-rctcel itt three stcirs:

1. W* slart *,ith Aiiattr Stttitlt’s original *xplanatrort. rvliich
irrcrc:ln1 ilist tlrinkitrg.

1. We iher: sre that Ilavid Ilir:arclo’s p|incipic cf contpittativ
1i.’ e.rplain irailf tlcnrrr ihan lnost people’s intrrition aucl bct
arigi nai expl*rtatitlt

3. We hegiti ortt’ dr:r’*iopment oi’iotlls 1or atialvzitrg a two-
prodr.rJion-possibilrt5′ ctrr\’c srilllrttitlizes nalir;ttal protltt
an,, ,,** it ro shorv lt

cquilil
cluest

u’r:i1 ag
Ir) 1r1l

‘0duct ec{)11l’rlil.v.
ion c:rpabilities

‘l-he

\VC

theage rtilli i’nhiln{lc

46 lnternational Economics – Vol. i

P;tri One ‘ill,’ I jtri,r”r i:f litl, nlrrlililrrl
.Ir,trL’

As ;r,cu rcad lhi-( chapter. pa] attelllitln to the basic
tive adr’:ltrtage. ll yoil think that the tl-amer’r’ork is
Sttbseqtteilt chal)ters rvill builri orl the ke-v insiglrts
reaiislitl 1i:a1itt’cs to thc ecotiott.t-v.

lrr tl-ie latc l[itl”, alci earl:-./ lqth rer,i”Lli’i,*$. lirsl Aci::ur Sri.ritlr :,incl thr:l: !]aViil !t-ic:tlclO

trxltlcrc4 titi: basjs lor inti:r’national traclc as ititrt rtlthr:ir eflirl’tF trr rilake A Lra:llr fbt’Jtt:r:

tt.ac1e.’l’heir rvritilgs \vere rcsponscs t$ tlte cloclt’itrc tlt’ntercafililism prevrilitts l]i thi:

tiiite. ($ce ihc b*r “F,4ercarr1i1isrn.”1
‘1’!r,;ir

c1:rssrc tlti:cries 51r.’pye{l piJlic;’tnaket’s Iirt”it

rvholci c$ntur),, eve n thi.rugh torlay rrre vltrw thel.tl ils on’lv soeciil ci:lse! {li it nlort: basic”

and urtte 1rt:iverfirl. iheory oltracie.
in ltis i4,etiltlt ttl !{gtig’n.’:. A,.lanr Srurth pror:totr:d fi’cc traele i:v q:{llrlparitlg nairot:s

i* htrLisehi,rids. 1:.r,er,v- hoi:schoiel f irtcls it rr’ot’ilttrltile ti) prqdtiec oiilv sr’rlltc 0i’lile

l:r’gdrrct-r if cs6sL;ncs” auci to bu3,o:hel proclucts Ltsirigr thcr ir|r;cceds
llorn wltal tlte

iiou-*eirolci catt se11 lo itfhi:’t,{.’l’ht: sallc shoil}t1 lqrpll’tr’r tlrlioi’tc:

It is tlte triarirrt 0f et,cr.,, pr.trileut r.ilaste! ol’;r ft’rr]li1y. ftcrei t{r atlc]]lplt tll 1ll;llic irt hrittle il’hltt

it tr,tll cost . . . nlote tc nrake iiratl to bLrl’. I-hc taiior dtles llol attenlql to tttrl

l-rrtt bgy’: tl”reltt 1l’r-,rtr iiie s{ro*tla’tti .
\Vlrar is pr.Liil:nce in tfie r-rour,luci rrf er’r:r],pi’ii’at* flrnlill’. carl sclfcc lie lblii’irr tlrat ol

il gr,:at liiitgilotrt. If a fi-.rei!:rl cOllnl’ry can sripplv ils r’.’ith a coltrtloiiitr” chcaper lli;rtt \1’e

ou.selr’,r.. ciitt ttralic it. betti:r lritv it oltlrr:ttr rvitii sottte Palt oithc lrfoduct of tlitt’ont1

inr.lusr,r.v. ellplo_vcd in a u,aY in rvlrich *’e liave sotrte aclvatttitgc.

Ap exailple ciin shos, Smith’s reasrlning.
-l’lie t*’o “corirtq”ies” in the exatllple irl”:

the ‘ulritcd Sllrtrs alri the tcst ol iire tt’r-,t’1t1. ‘l lte trl’tr ploiirli:ts A-i* wheat iini.l cit-‘tlt

{pei-h,lps i1″oarll,v rcpi’escnting agriculturiil prortrLrts ancl
nra.ntfi’ircttlrecl prilrl:cts). Eae it

pruA1-‘.r is pr”oc!.rced using oie reso,’rcc ca[[,.rrl iu[rt’r’. (Srnirll ljoeLrseri on labor becausle

iie tiiciigli tlilt ail “valile” ivas aletri”iiiit’itr1 hr’:iiiil i.-ti’ltriiitl’rl ili houi”s ci’laboi^’ Iii
ttiis r.cspect he rvas imitateel brv Diiv-id Rtearclo ancl Karl Malf . *’ha iiiso br:lieveri titirt

lahor’.rtrs tlre basis tbr all value. 1&’e cion’t have to take this liferal1l”’* lve call cottsitl*r

“laboi” tc ire a l-rrrndle o1’resoitrccs r.tscrl lir lrrr:cl’:cc lrrodiicis’)
Sirppose tlrat tlic L;6irr’

whe:ii. lincl ihe rest of tire norlci is i;eller lhari the Iinrtecl $fiates at prcrlueitrg eirith’

Il is pr.ob:rb1y ltor a sLirpi.ist thal irrte].}tatiorrlrl t|rclc ee,n cl’e{ite bettefits. bcr:aits’-l the

tj’jtecl States cal ftrcutgl prorluciri* rr’lltt t1 riocs besi 1ri’lrtfri) anii e>:port ii- ancltirr:

resi o1’the n’rlrkl can lbcus on prirciL,iing \t’ltitt it cioes tlcst 1c]lpltilattd expot’t ii’ l’r:t’s
iook at tltis incre closclY.

Whai i1′ rvi-‘lleAp b,r,: “bettcr at plucirreirrq”” Wc cart rrttliefilc e:lcii cotll}11’1r’s ability

l{) lri.rt(jllr’J r’iir’il pt’r)tltl(:t irt r’tk’1il {rr’o r'(itliYaliill tvftS. litSi. \\’c iilll !llr’;}>irlr”

-lire lrurnbel ol rrrrils rli’r,.Lrtpril iitat :r u,olker f,an ploriucc in tlttc it*ur.

Secotrd. \r/e cail 1or.;i< at the nuutLrer of'hours that it takes a rv{rker tc prr:rduce tlite Ltttit

of outllut this js jrrst lhe reciprocal oj’laborproiluctivitl”. tlgl’e;lfl: s{rme t:l:lnbers lbi
{}r.r{ e:{anlple:

48 lnternational Economics – Vol. l

Part One’fl;’i-htolt i’ilitltttritLirr;i,rl 1l-,air

Prcductivrty.
Units cf cioth pe r labor hoirr
JetirS oj iniire-‘. per labor ircur

Labor hours to rnake.
‘l urrit of cloth
i r-rnit of wheat

ln the
United States

0 2s
0.5

ln the Relt
of the world

1.4
0.1t

‘1.0

2.5

her than tire rcst ot
rrld has an al.rsoluie

i producls to satisll
larl*. each can shjii
abs0iute advallage.
ole hour of labor

.rnit *1’r.r’itcat. In thc
af 0.4 unit er1- rvheai
using labor that has

Inciir itr,.
n il consrrrlt:rs in

Llceil irl the coiiittr.v
rrlnt dxcess cle rttanil
oth lir;rr: the re:st ol’
p0rt;ilg sotne of the

ing that 91ohal pro-
to exploit iis absrt-

ly is Lretter olT r,t,ith
intry. ln nlan],- cases
hrr errhanceei gioirai

llefsiiad* s0lr1c gr)v-
over the l {JL} vears
rest a 1’ear that otir-
h’v iras no absolute

lg than we are’l Will

ontet.]rpora1 ici;. rvht:
anr,tlting. Tlie f’ear

rglrt the1.’ could uot
hing aud rvonriered
ve tlle sanre f’ear in
*ntels i nl.erttali ortal

In this nuinr:r”ica1 exalrple. the Iinilerl States ltas an
ducitrg rvheat. because the LJ.S. labor prociuctivity in rn’heat is h
the rvorkl’.s labol productivily in lvheai. Simi1ari1,” the rest of the
advarrtage in prochrcing cloth.

lf there is nci trade, thert eacir countt’v rvill irave to procluce bo
its d*uranci fix’ 1he pt*ducts. lf ihe cor”tntries then open to 1i”ee
its labr.:i’resourel’s lou’ard prtducing ihe good in rvhich it has t
lbtal rv*rld proclLiction incrcases. itr fhe Unitecl Stiiies, shiftit;
results in ir decrease o10.25 unit of clotlr and att increase *f 0.5
rest of the ivolld, shiliing otie hortr of labor restilts in a clecrea
ancl an inclease of I unit *f cloth. F-or eaclt procluct, prr:clLrctiot
higlr prodtictivity iepla-ces prc

in{ei’national trarie ntakes these shiJts itr protluction pr-rssible

each croirntry lvant to Lruy sonrrthing drff-elent 1t’orl rtrll:lt is
l;or iristiurce. jn the United Statq:s the apparellt sltottagc ollor
for) cloth (as cloth proiiuctiotr ciecreases) is ntet by impolts
the rvorld.I he ijnited States pa.vs fcrr thest’intpcrts ol’cioth
rrxtLa :vheat prodr-rcec1.

l’hus” Ailanr Srnith showerl tlte benel-its of flec trarie ir-v sl
dircticn eiliclerrc-v is enltancecl becartse tracle aliorvs cach r:ouit
lute atlvalttage in pt’oducing some producl(s). ‘r\t least otre cotr
tracle, and this cotr;rir1″s gain is nol at the expeitse olthe ttther
bollr countries u,iil giiin irour trade brv splittirr-u tlie benefits of
production.

Smith’s reasoning u,as fruidarlentaily correcf. and it helped t
*rnnlents to disrlantir– inefTicient barricrs to interttalictnal tl’a
trttct lre :,t’rate ll/e

That lear existed iti the rttinds ol ttlatty oi’Sntith’s Ettglish
r.r,clrrieri tirar the Dutclt wei’e t]tore pt’oc-1Llc:tive tlian tlte-v at tttakil
reappc:irs oftelt. in tlte rvake of Wcrld lVar ll. tnany natiotrs t
possibly corlilete i,vith the highl;’ productive ;\mericans iit al
horr they coulcl gain fl’om t’ec tradr’,

-foday
sottre Ailericatls

r1:

.j,i
‘t:.
a:li.

‘t

.i:
iit
igi

{ti
‘:S:l

iillr,

.#l

$,
\!;,.

:{i.

oi’
h-v

reyerse:Arcn’t fqrrr:igtters getting ltetter at itraking everything thi

lnternational s, 15th Edition 49

trade. ancl rvotr’t tlie
that i’ir”st ansrveled
tiorral tlalie.

{hapter 3 \!’ir L-rr:r’ri’i

Linitecl Sta{r:s be lir,tt’t by iiee
these fears anll eslablishecl a lir

I \fu’e trtrli ncxt to the tlieot’v
mental irrinciplr: ol’ infertra-

r-:l intelitiiliutlal tracl,: wi.is 1tt

noi caltultfit-s hav’; alty ilbso-

rriiuatio:l oi’ *ppotlttnlty cosl’
in a ctlittttt’l’ is the aitttlunt of
rorluttitv cost cxists bei:attse

lucl to this Prodrrcl’ {\Vt:
nfage” rvltft; tt’tr slriftt,:rj labcil

1t cal]
lv*u1d

ls in rvhicli rt h*s the grcatesl

tllr d

l ltvi il l{icnr.cio’s ntai u criutri l-rr:tioii tL} our rittcl*rstirtreli t

slitr,r’ that tltere is a basis fbr bcrtcl’icial tr;rtle urltctilcr o

illlr tlti\,’tiiltilte. I lis contribntirxr is barcrl ctr a cal*ful t:x
‘I

1:e
l,

‘ … r.rf plor.tucing ntote oll prodtrc
proilLrction r:l tlie ctitcr prclduci thrJ i1 g-rvcn up’

‘T’he o

irr

irlre lri.,’ itser.l lltis idea irl tlte discLtssiotl of absi:lute aCv

h”onr lirociLrcirlg otte prcclLtcl to l’rrodLicing
the otl”r’-t’prtl

I{icardo’s .,r’:rititlg”s it’, rltc cat’lv l9th cenlr’iry cl*l

rl)1ller\.\’i5e piodttc* at a hlgh oppt’)rluliltv iiost’
‘l hc liev rvorcl ltcre is crtntlttttttttl’ir, tl-iealtittg “relatir

the or.her fo$llity is alisolutel.v icss irt’orlttetive . thc-Y boi

allicr as iotlg ns thcil’ ielative (clisladr’*triage s itl rllakin
L.acir coLrntrS, cirtr Lretre l’il tl’otl tratie lry expoltirtg proc

rclafjve a{hr:iiltage (or lcast rciltfir’;: dis:telvatlta!-te} alt

r.stratecl “ilre

oods iltd serr;ices tltirt

pr,,r1i,ce ai a 1ou’ opportr-rrtitSr eost ancl import the g
s antl i;i’t’r’ices lhat ii

” ar.ifl “n*l nectssarili,’ abso-

1Lrts.” l!r’el] ii-one coLtntry is lbsolLttclv tnolt i:rotluctir at pii:ducing
el’er)’lltitt!. iitrrl

caii gltiLt by’ tlacling l.”ith i:llclt

iiiilrrcirt gootls ltt’e rli1 r’–nt’

it h*s the lcast itiarive advitttt;tg* (ol’ the gleatest r*l
agrl:n;a.c lt is ai:tua11y a rloLrbl* cottrparistttt–‘betri’ecit cc

Rical’rlo clrove harutt the pcirtt n’ith a sitlrirle nLtrti

lraclirtg irl’r.t prodLtcrts icli:tlt ald rviltc) be{u’cen trvo crtL

llere is :i sinriirr iilLrstrtrtiotr. Ltsittq *4:*ar anil cloth in

oi’ thr: rvoilli:

irn;rerrririg pl’tlciucts itr n’lticii
tive ilisaclvitntag*)’ }{tcat’ck:’s
nlries anil betx’een |roditcts
i’ica1 c.ratnpL: of’ gititts 1t”out
rrics (Engiittrri atld i)ot’tuga1 )’
thc’ Urtitcd States arld lltc re

{n the ftest
of the world

10
U,U /

1.0
1!

ln the
United States

o2\
05

!rciciirr.li viiy:
‘iinit: of cloth Per l;bor hoi-tt
LJntrs cf wlre.lt ller !;bor houl

l.:bol hoirrt, to ilako
‘l unit of clotir
i r,rnlt of whe ar

4.4
;10

ilgre” ole coutlllY has interior prcdrtclivitl’ in both s.
‘l’iic l-initcrrJ Sfliers lus :l’l-‘so*

or ialger ttLttrtbi:Ls cJ- hotils io

vill the l”initcrl Staics cx1:tlt’l ot”
1u1c rii-{adviintages in lx;th goorls’-‘ lilro”eL proditctil’it’7
pruclLicer,,.r.,.,’,ll r:i’ c-ach gor;cl. What pt’tltit:cts 1 i1′ rtrty )

inrplrt I r.,lirtt trarie brilg net ilali’-ltttil gaius til botlt cc ries’J

50 lnternational Economics
– Vci ‘l

Part Orre f hr
‘i-ll””ir iri Jlrltrrl’rtii’tr’ri ll’r’J’:

i*r: lhe irvo ctliinl’Ltt-rs
tL) pl’odrice btih Plod-

.111 o(iili1 !1r1{ i”i lll 111

ihitt enctl cottttlt’l’ u’i11

I fiicLlS 0l.i ltil1 \/il1ilcli
]t 1.1’* cilll. llttilc;’lilatl
tr-.ltt irttit), r’,\” \tritll tisc

.:r
)l trrittri lrl lt l. I I \ ii\ I ‘
lrl trr’oriirdl:; lil,u rrirr’lrt

iri’r)tlttt:l Fri;is t’tiicet
rr,r 1t’itr!c. 16;1 i1g1li’r ll
I ciotir illiit.’l’hc Prlcl’r
\ih*3i llllils is itlsc the
,/-r rrr’u’r’\ r’.t llrlei ctislf . )

Irrrit rrr ,Z’-l ri lte;tr Lttllt

htiti Lttlit itt llrt t’tst crl
i’ic*s u’oititl f*liliv titi”

ln the tlnited States ln Rest of th*
Weit9et

\,Vii.h nl inlettraiiorral it “-‘de
Price lf cir.rtl’i
Prire- i:f

“”llreai

w/{
GVl

bl wl(
\ Cl”tf

cicl ttl clotir uttits’
‘-!-it’-:

s1!1 ( illi{‘), attci tll* t’ell:-
rirliil iil eacll colilllriv

ICl()Ut
1 thi: t’cst oi ihc w0r1{1′
riccs 1bt’ each gloil nttd
nti Lulivelsll: As 1i;ttg as

iitg lietrvectt thr: Piai;es)’
v plicr, iil r:tte Plltce attei

tr: th* l.irlitcei Siiitcs tit
tlre pelsoir cLrLilel tl-‘*lic’

‘ lirt’sach clotlt rttlit’ Shi:

;iit” /, tLl “lr;’r;rr’ ‘t;’

\!c n’ili Llsc the lloliltil)tl fl’to rr”l-cr to
nrlt*lli r’rliits ancl {‘tcr

relatir’* iirictr oiclottt i’* “.’t*’u’*a
a1 f

i111t
1rr11t:..1:,1.:”,’.’,:,:”,’

i:J:’ilS’;; ;;;,; ‘;;.c”il
xo’* lr*::1:.::

is r*auv oulY u

bee aLir* tl:e piic* ot.*iieat i:r itrst
lhe t”:cipr’;rcal oi- the pricc

Slcrv lci lr:idc he l:a;sib1r l’ig1″1’1’1;1
tli’: l.tniL’ri Stiiles at

U,,ulel’it:d)’ t’i1i notrc'”ittt”Jirft”tici ,!,c:*1:1 .t.1:.11j:::l]:i]
ilii’il:;?’.,; -i” it”‘*tttt”tititttutt’ 1 1 it’

p’ nciple is sinipl e

:rriccs thlti:r in t\Yo piacfs (bv tttore
iilliil ltnv cust oitt’airsptr

i11.i.’tt’,,’t”,,i”t,’-‘ p’i’rit tlrr’tryh -bit-vitrg ill
the I

r.:lii,tg at thr higlr plrcc in tltc olli*t’p1;ti:c’

Ptlhails thtl i’irEt ‘i*’t 1″”ut”t
:ri1l think tti’setrciing c1ol

_r.r-l””g5’l’t),i r r. s.,r,i,”lnt.’ c'()ns: ci*r
thc ir|lri rrage p|o li t tira

Slre acqLtilr-s r’llotir i”
”ft*

t*tt ol lite rr’rlicl grving up 0’67 I

Wr:

6r,-‘i,y 11 : iri’ f l !rr al l iiiia f Ol( Olii[llC irr l’r!
:

i ii,rcl’ tt’tl,;,1 I i
-l’ri’li’

ilc’i’::i r’ i l-{:’ i’: t rr :’: I’

r’;:iiriilli:i’r’.rr-a’:i lilirrfii it) li-“ll Uil’cs iiti’ ,l

r’iyiialrlS i| \iril,i-i ir.ll;ir’ i:k’e oi-tiill;t’y
I l-l”tl

ll,arut, !,,1′,”,r”,:’ iir”- i:lir’l’ .i tic l’l
iia\”r’. l

,au,iiV’,,,,li,’ oj ,:i i:;-’tillci-s othr:t inlt::’i’

bct,,,c-eit tiicr iountries is zc-t’o.’r
-[‘here lile . b1’ buying lori lt (].6;7) anr’l selling high ial

2.r]). sht catt titilkr-: ait arbitritgr- pt’tli’it i:f- 1’33 l’I! ltr eac
irom tht: t’cst ollltc r’r’ttrltl {attii ititports il;to t}re Unitcd S
pl’otil bi acqr,riring u’hcat in the l-irritecl States at the 1l*r”
str;ppi,tg tlie u’hi:itt to lhc t’esi oltlte ri’nrid anrl selling it

rt pushittg lhe trn”o scpal’iltr
rn. As p*tlPle ictlove cioili

fr-orn thc’r”est lrltlte r’;ot’lc1 b.v exporting it” cloth i;ectltt’t rnore expcllsive
t’elirtivc ii’r

then ships rhis cloth to the ljiriteel Slatr.s ancl selis it tl
“fo

kLlr:p tlttlrgs sitltnle. lve r’vi11 u-*rtallr’ tlssllnle that tire

pi-‘r’ x,hcat tittit.
‘i tre (-)irclliilg ol’ plofrtable ittierllationai traeie ”ri1

natioliirl plice ratioi tou’ard a llew rvolilirvide r:qrrilibri

u,hcat ili the rest ol.th* r.yorld. \4cattrviiile, cloth Lieconres
tha*ks to thc additiotlal sttpi-rl-r’ erf cioth iittporterl ilonl tl

telxls to get nlrire cx1:etlsive r’l4terc it rvas clicap at f irst” at

exi;tusit e. (A sirrrilar proc.ss oicl’l’s lol’ :vheat’)
‘l ltc tettdcitcit’s ctttilinrte until tite trvo nalional rr:lali

lnternational

Chapter 3 \\ lrr

r:r;Lrilibrilnl t’*latile pt”ice. l”irit’tnai tiaete on an oilgoi1.lg

or. ecluir’rtltiit lr'”

2.t) l4/i{: = Iutcrnationai prictr ol clotlr

{i.5 (‘/rY 5 1t:tertlatltlnal pt’ic*– ttf’$4rea

tire .rs:,ri]..|tlriict-t ci lt’to irai-ijpoii rtl”i:; :: tliailr’rli\r il’lir;rlcsl lf ir’-il

itr rlc, ill’t’,r reijL.,c,: lhr: qAit-t’s f ttlnr Lraiiinr.] f lrt tlo llol.lc\/1 rs{‘ ‘lily
(r’

i i..rl;’r,,lr,ic,niri,.lrrf’t.rliaillr’llllt.iill(;liiOll,lilcir-liilrlqtilefiellitlety
. a) :r il rr r. l’J (i by e’ rrr.i I i ;r rr cl it-‘i e pir o I I e,

15th Edition 51

‘e for 2.i) ill Pi:r clrtth itrtit’
st of tlansPorfing il:’or:lLtcts

clotli riltil tliiit shc exllorls
tcsi. ScttiebociY elsi: cortld

lir:e oi’0.5 {.’llel il’heat ittttt.
br the irii:h*r pricc o1′ 1.5 (

jhcaper ili the l,.,niicci States.
) rest tlitilc u,oilil. So. cloth
e1 ch’;ap*r’ *’helf it tvas ititll’*

e prlc*s
sis n ill

berrolne otie u’orlcl
be cortelLictecl a.t this

ecluiiibrtuin reiative llrie e.
!Vlrat lvi1i tire equiliblium ilttet’uatirltiai price iri:’l lV

krtor’r’itilr ltort’ strtlriglv th{:) lr.r”o cotintries rietttanel eac}t

kr;ot’ sixrtelliilig tirc equilihrirtttt itti*rttational pt”tcc t’it

catltiot sit.,’ li;l sttl’f, rr”illroitl
of’ the tr.r..o PtcilLlc:ts. \\ie rll
io utLtst l;rl1 rvitliirr thLr rangr)

61 t’\’,1(

I 5 i’t|I’,

e. lor itts’Litttcer. cot”tsider.. att
1’cioth. the rest o1’the :’,’iiilci

i:rice of ciri{ir ctl litc ilttci-
at itotrrc ti|.i:i l'{/i{‘}’ No ek’al

Stales rr’ottlil also rvatrl tit

ir:, itnil tire cia{h pric* rvoitld

i SruiilaL rciisttttittg appi i es tcr

c 2 li/i{‘.) The ottlv u,a:/ lbt
licc scntcu’irele in the rat:gtr

L aoiis .rial plritii.’r: lri tt tli-‘i lot:
i,,Jtrl ,:rr I.l ‘ rrl

:o;

s a’iLrl’l pi’l\’rctl’r i’;n;’ ti’at’lr: iI lflotr:
illt: r-cst of grriillrr; ii.re sciler

tr:rtl ii:, i,irira jr-rst io gei a r,irc’.rir
l,v if liri: sfi\.ij{:(‘ i! “tl;rr5prii{‘(l
torrsulirrr! i’i:’,tarcir lrrr iirr

aa)itlf-tie l.crl r,”111 i1, I’r-r;i-r

rlithe tg,o FrieJratios that pr”evaiii–d in tacl: coi-llltrY
be e trade btgatt

Wirr,’) {‘olsiric’t” ti’ltet tyott’ld happel il this \4/ere /'{-tt 1
interr’,atiort;rl pric* o1’only A.4 il’/C At ti-ris lil1ar pric’:
,, ,orri{l $,a}ti to irt4:ort clot}i antl extr)ort rvheat becattse t

nirtioual ttiat’ket is ttorv i-rclorr’fhe cosl clprodLrcirtg cloti

cculel bt trtacle. thougir, Ai this iiirv cloth plice thc L’)rli
irrporr r:1r,.tlt itnri .”1tirt t’u’heat’ No eiltrili’u”itttn is possi
belrirsh,-,ti uil as a re sult ol’tilt’ c'”iccss {s112nri lbr eloth
shsv,r tirc lack of an eril-rilibliuin ii tlte ciotlt pricc ts ab
th* tr..ro sirles to ugfce 0i1 t|ariing is to htive iltt: clolit
{).*7 rr,r 2.{} li/i{”

iit :r \,!{lrlri v”,,iiil rn.:rtir llto’ji.tt-ii, iliqil it.lr-rs1]r”ri 6i-;5i5 ltil :ll)rlle
pIo

ili.oriui-i5. l:i:i-irl:tatlce, tti;;ily:cirllct:5 ili{”
llollilad’r-l frlirllLlci! ller.

ir:rrl t;t.rylt ioqarihr:f lrc ici:r iili-llr’ ii\o Iirladi;l;r cr l\lflPrit’:irl i;oir]lj i

it.rttciri.j Yl’l irilti:l sclvir.li c.tl itit itrlrl ate Lreiltij ai irl’
‘r ‘j\i, G’rr’ ( ii

ekii;or;r-.:iiv. lr’Jt ltrliarrr’c, tllr’aitthot t”i’ iili-r irllok tellrttlV ionlpli”it

ffi

52 lnternational Economics – Vol. 1

Part tlne

Sulrpose lhat lhc slleirgths of dernanrl f-iri ilr* pllrdi
rnore r-:lose lv in lire next chaprer. lcrd to au eqLrilibriLinr
has the couvenicr.rt v;1hle ol’ I l+’i{‘. fh*n bolh couirtries
I ltr: llnitccl Stafcs gairrs:

I1 pt’rti’ittci:,t a illiii tii’lvheal ir3. Cryrrtg L4l tltilv 0.5
I1 c:rn cxi:or’1 tltis *’ht’at rrnil iurel lee*ir’* I rrrtit r;l

l’lr* r’r:st ni’ti:e trr-rrlrl garrt-‘r:

li prrircirLces a Littit ol’e lotlr b1’giving Lrp oni’,, 0.ir7
It citu erport iliis clriih unit ald tcr:qir,’s I tinil ttf

[]ori’ cki absti1Lr1e aclvarriagc’ a:rd conrirarative atjvnnla
l1’t t\\,r-r p;lt’ts tr.) the *nsri,er” Filst. Sntitlt’$ e;iallplr oi’eil
adlJairl;tgrr in r’rnc prorir.rct is aiso a case c1’cotlplu’li{ive i
sis c1’ci:nrpirrative advantallr: coLrld be appli*d to the tii
i1(l\ ilitliilt itt iltc prt’r ir\tl\ sc\’ti()tl,

Seer;nei. con:irai”ativi) ad\.antage is nlt-tte gcnet’a1 aitcl
thc tr.,’o coirtttics hai’e rliilbrert 1;t’icr: r’atros if thcre is ttr
i:olirpralirtir”c ::.cli’atrtagc er.en if it ltil; ttit absolule ::rlvltita
gains ft”orn tlacle arise fi’r-rnr rlilltlcttces bettvtrtl the cilt
the gooils. ltt oitt’ ttLtn:elical exaurple of contparative :irJ
oIii ruril of *’hett *’ithin the Lintted Statcs i{}.5 C,/Lr’) i
cost iti titc lest o1’tirc rr:ot’iil (l’5 c,1ilj1. lh* tr’initcd st
tiroiigir ri has an nbrtlrrtc disaclvarttagc iit prodttcing hotl

St; is eo:ttparatit’e ildvanii’igc g-,rg11rfiii11r’; Nct exlcil
ckrcs nrtl delerrrritte thr tra(il’llattcrt’n il cascs likr: this. rt
inla standiirds. I’lavil.:g an al.rsolute disadvatttage in aii p
is less producfir,e tltan *tlier coutiiries at’e . Lorv-pt’ttdue
wages and ;rt’e p$ot countties, Higlr-11’otlttctivitv cortntt
firri rich corrnllies. Sec thi-‘ box titl*cl “Airsolrrtr: Acivaittit

iticardo’E :rtunerieal illListrnlion si:cccecled- ii; pt’ilvitlg
aclr.arrtate. \!c calt itlso sho*’ llicarFigLrle -1.1 piclLtlcs ploducliott. ct’ltlstti:tptiott” ancl lra
the resf oi’tite *,crld. l-et’s exatline ttaiiottal ;rrtlrlLlclion
resourccs (labttr) to protluce variotts allloLlllts o1”tite t’-vo
shcu, 1..’iritt a iialion is r:apable olpliltitti:itig lrlrlttirc: t lLl
lircsc possil-rilities. For cratitlrlc. cottsitli.:i tltiit tltc L.it.iik:
oi’1abor ilailablc elitrittg the ‘,’eat’. :ttlti tltat labr:i’ prod
Ricalciitn rtuntsrical r.rantple (i.).i ii’1r’.’itt Lttiii per ltott:’
fhe’n. tltc Linit*d Slafcs can ntak* 5{i hillicn ri’iteiit Linit l]Llr vear il ii prcclucr:s 0n13

cts”
“vltich

,”r’c tltli exarllnrl
intemalionai clotlt prieL: thal
ain liilrrr intelnaiionai trarle

oi’e lulh.

ci’rvhslal

e r”*littr li; r:acit r-rtlier”,t’i’h”rc
r c(‘)lrn1r_ir ir:rvitl’g an air-coli.ltc
vantil!:e. Cur rjr:tai leei analr’-

erical i:rarnirle ol irbsLiiiite

)\\:*r’iu1. Wiiat tl;:-tters is that
traric. ,.\ criuntr.,, *’ili ltitve il
:. l-hc basis lbr tr;rde ititd lh*
lrics iri opl;oltiliitv cosls o1′
iilrtagc. lirr. ttlt1;orluttitv ccsl
li,’.r cl’ 1lt:irr lltii oirlllt’littttir
ti:s rviil *xpori rvltt::’il. n’ct.t
n’li*at aiid ciollt.

\Vhiic: absolute ;i{h,;ttttagc
fi i

rrity ccuntrics ltal’t lu’,t’ tcAl
s havr higir :”cal rvrttes and
Do*s Mattci'””

: principli:
ntr,ge usi|lll

ol” cotttpar*livc
rliagrrnrs indi-

e ibr the i,nitr:d Statr’s alicl
rst. l–.:r,:li col-inlty calt use !is

riucts. u4tcat anrl clctli. to
‘r-: {r:r”litte)that siicrl,s all oi’
Statcs has lili) billion liottrs
tiviticrs i:ire i’)s slitttvlt in tlie

l).2-i cloth unit pr’t’hoLtr)

itat cilect does tlis havc

“ltt
dctttanil l’ci r”rther prodLl
Ftrll anal.vsis ol ititernalional trade r*qitir*s coltsidcrratton
Y*i lilr cttftlL’ccollonty is r”cr-v c6ltiplex- -it c6ttsisls olfhottsa
vilrious resoul’ces neetleii ttl proc{ttcrl thetti. I”ortulately’ lve cail
cuitsitlcl’ingr itit ec$llolll-Y cottlposeri r f’jusL tu’* protlucl:l’ I.trr
j
ltroiluct earr be e,rpolte'{ iittc’l the ot}tei: itt’rporttcl. Tiris
t\l’o-plo{
xit ftse ntial ieafiit’e of inlet.naiional tradc: A cttuntrl” tenrls tc i;e
pens to the l’e$oriLces
i11, dettriinclcd cl one
^’)5.
lhc eltire ecanoll”*l
of prodi.tcts and thc
in nrair:t insights tr1″
lernati0lliii lratlcr. one
rct cconiltlrv cailtillcS
net exporttlt’ of scxtle’
urt ol’ a tu.ro-Pt’orittcl
rs: $,’h-v rio eoutttrries
ery pctstlrl–fincl rt
{bLrv ) ctl:el thl;lgs’?
i elopcd as h* hrattlerl
aclvatttage lllotvs tts
tirait Adanr Siititir’s
plociLrcts attd a net intporiel’it1’others.
-Ihis
r:haptei’ bcgins tltir exantinatiixt trf tlte rit:net”;t1
ilctlilr)ln-v. We fccr.ls $n fh* llrst i}f ou| ltrul’ h:tsir: tri+ile
trirrlc’.’ In irct” rl’1r5, docs i:r’erytrod-v ‘ ‘ev*rv eotllltl’v as
rvcrthrvhile to 1tt’or!uce alici exllort {se11) sonle thirrgs and
We prt-rctcel itt three stcirs:
1. W* slart *,ith Aiiattr Stttitlt’s original *xplanatrort. rvliich
irrcrc:ln1 ilist tlrinkitrg.
1. We iher: sre that Ilavid Ilir:arclo’s p|incipic cf contpittativ
1i.’ e.rplain irailf tlcnrrr ihan lnost people’s intrrition aucl bct
arigi nai expl*rtatitltt.
3. We hegiti ortt’ dr:r’*iopment oi’iotlls 1or atialvzitrg a two-
prodr.rJion-possibilrt5′ ctrr\’c srilllrttitlizes nalir;ttal protltt
an,, ,,** it ro shorv lt:port ii- ancltirr:
resi o1’the n’rlrkl can lbcus on prirciL,iing \t’ltitt it cioes tlcst 1c]lpltilattd expot’t ii’ l’r:t’s
iook at tltis incre closclY.
Whai i1′ rvi-‘lleAp b,r,: “bettcr at plucirreirrq”” Wc cart rrttliefilc e:lcii cotll}11’1r’s ability
l{) lri.rt(jllr’J r’iir’il pt’r)tltl(:t irt r’tk’1il {rr’o r'(itliYaliill tvftS. litSi. \\’c iilll !llr’;}>irlr”
-lire lrurnbel ol rrrrils rli’r,.Lrtpril iitat :r u,olker f,an ploriucc in tlttc it*ur.
Secotrd. \r/e cail 1or.;i< at the nuutLrer of'hours that it takes a rv{rker tc prr:rduce tlite Ltttit of outllut this js jrrst lhe reciprocal oj'laborproiluctivitl". tlgl'e;lfl: s{rme t:l:lnbers lbi {}r.r{ e:{anlple: 48 lnternational Economics - Vol. l Part One'fl;'i-htolt i'ilitltttritLirr;i,rl 1l-,air Prcductivrty. Units cf cioth pe r labor hoirr JetirS oj iniire-'. per labor ircur Labor hours to rnake. 'l urrit of cloth i r-rnit of wheat ln the United States 0 2s 0.5 40 ?0 ln the Relt of the world 1.4 0.1t '1.0 2.5 her than tire rcst ot rrld has an al.rsoluie i producls to satisll larl*. each can shjii abs0iute advallage. ole hour of labor .rnit *1'r.r'itcat. In thc af 0.4 unit er1- rvheai using labor that has Inciir itr,. n il consrrrlt:rs in Llceil irl the coiiittr.v rrlnt dxcess cle rttanil oth lir;rr: the re:st ol' p0rt;ilg sotne of the ing that 91ohal pro- to exploit iis absrt- ly is Lretter olT r,t,ith intry. ln nlan],- cases hrr errhanceei gioirai llefsiiad* s0lr1c gr)v- over the l {JL} vears rest a 1'ear that otir- h'v iras no absolute lg than we are'l Will ontet.]rpora1 ici;. rvht: anr,tlting. Tlie f'ear rglrt the1.' could uot hing aud rvonriered ve tlle sanre f'ear in *ntels i nl.erttali ortal In this nuinr:r"ica1 exalrple. the Iinilerl States ltas an ducitrg rvheat. because the LJ.S. labor prociuctivity in rn'heat is h the rvorkl'.s labol productivily in lvheai. Simi1ari1," the rest of the advarrtage in prochrcing cloth. lf there is nci trade, thert eacir countt'v rvill irave to procluce bo its d*uranci fix' 1he pt*ducts. lf ihe cor"tntries then open to 1i"ee its labr.:i'resourel's lou'ard prtducing ihe good in rvhich it has t lbtal rv*rld proclLiction incrcases. itr fhe Unitecl Stiiies, shiftit; results in ir decrease o10.25 unit of clotlr and att increase *f 0.5 rest of the ivolld, shiliing otie hortr of labor restilts in a clecrea ancl an inclease of I unit *f cloth. F-or eaclt procluct, prr:clLrctiot higlr prodtictivity iepla-ces prc

FigLrle -1.1 piclLtlcs ploducliott. ct’ltlstti:tptiott” ancl lra
the resf oi’tite *,crld. l-et’s exatline ttaiiottal ;rrtlrlLlclion
resourccs (labttr) to protluce variotts allloLlllts o1”tite t’-vo
shcu, 1..’iritt a iialion is r:apable olpliltitti:itig lrlrlttirc: t lLl
lircsc possil-rilities. For cratitlrlc. cottsitli.:i tltiit tltc L.it.iik:
oi’1abor ilailablc elitrittg the ‘,’eat’. :ttlti tltat labr:i’ prod
Ricalciitn rtuntsrical r.rantple (i.).i ii’1r’.’itt Lttiii per ltott:’
fhe’n. tltc Linit*d Slafcs can ntak* 5{i hillicn ri’iteiit Linit l]Llr vear il ii prcclucr:s 0n13
cts”
“vltich
,”r’c tltli exarllnrl
intemalionai clotlt prieL: thal
ain liilrrr intelnaiionai trarle
oi’e lulh.
t.
ci’rvhslal
e r”*littr li; r:acit r-rtlier”,t’i’h”rc
r c(‘)lrn1r_ir ir:rvitl’g an air-coli.ltc
vantil!:e. Cur rjr:tai leei analr’-
erical i:rarnirle ol irbsLiiiite
)\\:*r’iu1. Wiiat tl;:-tters is that
traric. ,.\ criuntr.,, *’ili ltitve il
:. l-hc basis lbr tr;rde ititd lh*
lrics iri opl;oltiliitv cosls o1′
iilrtagc. lirr. ttlt1;orluttitv ccsl
li,’.r cl’ 1lt:irr lltii oirlllt’littttir
ti:s rviil *xpori rvltt::’il. n’ct.t
n’li*at aiid ciollt.
\Vhiic: absolute ;i{h,;ttttagc
fi i

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