international trades play a role in almost every item we purchase in our daily l
ID: 1199794 • Letter: I
Question
international trades play a role in almost every item we purchase in our daily lives. For example, Colgate toothpastes are “Made in Mexico”, items that are “Made in China”, “Made in Malaysia”, etc. What are your views and opinions about this. Should we continue to use items that are made in other countries? How this relates to the economy? Is there a positive and negative effect to the economy? How does your arguments tie-in with ideas of trade/comparative advantage, as put forth by David Ricardo?
Explanation / Answer
If you do everything better than anyone else, should you be self-sufficient and do everything yourself? Self-sufficiency is one possibility, but it turns out you can do better and make others better off in the process. By instead concentrating on the things you do the "most best" and exchanging or trading any excess of those things with someone else for the things that person does the "most best," you can both be better off. Comparative advantage fleshes out what is meant by "most best".
Yes, we should continue to use items that are made in other countries.
Because it has a positive effect to the economy.
Ricardo’s theory of comparative advantage points out that, if a country is relatively efficient at producing certain products then it should specialize in these, even if it does not have an absolute advantage in their production. In other words, even though other countries might produce these goods more efficiently, a country should still specialize in certain goods if the opportunity cost of producing them is lower in that country. The opportunity cost is the cost of the next best use that could be made of the resources devoted to production of the goods. Opting to specialize in goods that it produces comparatively efficiently could help a country to sell more and increase its income.
The benefits of comparative advantage are that, if the country specializes in those goods in which it is relatively most efficient, then the total national output and, therefore, the national income may be increased. The country can produce more of those goods than it needs and export them to other countries while using export proceeds to purchase imported goods and services that it does not produce. In economists' terms, the country is pushing its production possibility frontier outward and, therefore, increasing its national output. The benefits of comparative advantage may, therefore, result in greater national income.
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