chpt2

A.) The mercantilist point of view versus Adam Smith Absolute Advantage is different in the sense that mercantilist chose to seek resources for themselves. Dividing and conquering and taking as much land and countries as they could to get the resources to be the super power. With Absolute Advantage, however, countries spend their time and resources on production of goods that can be made more cheaply and efficiently being that nations absolute advantage over the other nations. Adam Smith and David Ricardo’s ideas are similar in the sense that they both agreed that free trade was the way that a country was to succeed. However, the difference between the two ideas was that Ricardo believed that the economy was less stable than Smith’s views. Therefore, resulting in stagnation of the nation economy. This is also a further result if the government meddles in the nations economy.

B.) The fundamental idea that Ricardo came up with was when he looked at Smith’s theory and thought to himself, what if the country was efficient or more so than the country that it is trading to and has an advantage over all of the products it is exporting. This is where his theory came into play for the complete advantage.

C.) You can outsource your comparative advantage to and outside distributor, however it would then no longer solely be considered the countries comparative advantage meaning, this product within making it they have a cut above the market. The only way that outsourcing would help in the comparative advantage is by teaching the outsource the skill, then assembling the part in the comparative advantage country.

D.) Some advantages of outsourcing are:

· Reduced costs and increased competiveness

· New Exports

· Repatriated earnings

Disadvantages

· Less competitive

· Weaken economy

· Loss of jobs

A) To begin, Adam Smith was known for principle of absolute advantage. The basis of this theory is that by having two nations,and two production worlds, this will only benefit everyone in the long run. In order for this to be successful both nations need to have absolute cost advantage in the good they specialize in producing.Smith was very much so behind this and a supporter of free trade.Moving into the next classical economist, David Ricardo, he based his theory off of Smith's. Although Ricardo agreed with much of what Smith said, there were some things he disagreed with. From this came Ricardo's principle of comparative advantages.As stated in the text a nation has an absolute cost disadvantage in production of both goods,that even with that a beneficial trade may still exist between the two nations.The nation that is less efficient should focus on the one good they specialize in. So they basis of the theories are similar, but Ricardo takes it to the next level and elevates it. 

B) The fundamental idea underlying the comparative advantage theory is that there can still be a mutually beneficial trade among two nations even though there is an absolute cost disadvantage on one of the sides. This differs from Smith's theory because it shows that trade can still be successful,even if one side is still struggling.

C) Based off the readings in the text I believe that you can not apply comparative advantage theory to business outsourcing. An example of this is Boeing 787Dreamliner. This was a company who produced jetliners.The company outsourced many contractors around the world to put pieces of the jet together. Boeing did this for lower production cost and to have it produced faster. With so many contractors all over the world,came great risk. Unfortunetly for the company it took a turn for the worst. As production fell behind so did the company by a few years. Could this be how Boeing conducted things,due to the fact that the automobile industry today thrives from outsourcing, or is it because automobiles are a way of life and there will always be a high demand for them ? 

D) When talking about advantages and disadvantages of outsourcing there a few on each side of the fence. Lets start with the advantages. A few are : reduced costs,increased competition, new exports,and repatriated earnings. When outsourcing jobs over seas it is very cost efficient for companies because they can easily pay workers next to nothing for working. Next when there is open trade it increases companies to be more innovative and keep competition building. Competition is very important so that nothing stays the same and evolves. New exports come from trading with other place we can recieve things we did not have before and vice versa for another country. Last is repatriated earnings which is when the earnings go back to the parent company and helps the economy stay strong. Next is the disadvantages of outsourcing, they consists of : weaken U.S. company, threaten American jobs,and lower wages. Most believe that by outsourcing it is taking away jobs from Americans here in our country. Companies look to outsource work because it is cheaper for them, but what about their families and people here who need work. The next is lower wages. By outsourcing work to next to nothing wages everywhere else in the world, it actually decreases the wages of peoples jobs here. All together this is said to affect the U.S. economy dearly. People believe that the jobs should stay here and that we should be putting it back into our economy.