product

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" $'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<trv tlaiiirtg t'rased oit coir:parltive arlr'a wcll-being o1' a coittrtrY.

cquilil cluesti

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.

i

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<e lti:; nritl slttl:s'

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'<l Slatr-:s is betriel than the res1.o1l the lt'ot'ld at pil:ducini-1

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

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<luctiou usi*g lsbor lltat hirs low 1:

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<t/tli ol Ncttiozr,s. \'et his algllrnel)t failecl to pLrt ers harl alreariy' expt'essed even betbrt' he rvrofe. Wltat if our col arlvanfage'/ What if the fbreigners are better at producing ever-ytlt thev n,ant to h'ade'l If they do, should rl,e rvant io'J

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.

ap

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<LciLreticn rcsoLllcr:s tttust Lrr: :;hifieLl ir"anr the r:ther

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 rest

{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

2.

0

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: <cr:tl l.-lr-lli'"1 il'ii:irl il I'rril r':'(:iii]! 'i :r

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

st

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

k

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*' llicar<ler's certttp:ilative ad calin!I $'hat eftlll c{.'}untr!' can proditct- ltttcl ,:ottsttille.

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<r1, 1s rJiltst'cne:r's it.i lir,- rcts urrilns lhr-t th* cout.lil'y

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)