Explain your answer some clothing here are the

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Unformatted text preview: can produce. United States Japan A: 150 food, 0 clothing B: 100 food, 25 clothing C: 30 food, 120 clothing D: 0 food, 180 clothing Now let’s consider two cases for both the United States and Japan. In the first case, Exhibit 15-3(a) on the next page, neither Japan nor the United States specializes in Section 1 International Trade 399 15 (390-427) EMC Chap 15 Countries can have more of each good if they specialize in the production of the good for which they have a comparative advantage. They can then trade some of that good for other goods. 11/18/05 EXHIBIT 9:12 AM 15-3 Page 400 The The Benefits of Specialization and Trade Specialization and Trade (a) No specialization and no trade Without specialization and trade, countries have only what they produce. specialization produce. Clothing Food Food Clothing Japan United States (b) Specialization and trade With specialization, each country With specialization, each country can produce more of the good for which it has a comparative advantage. produce the good for which it has advantage. Clothing Food Japan United States With specialization and trade, each country With specialization and trade, each country can have more of all goods. have mo of all l Clothing TRADE Food Food Clothing TR ADE Japan the production of either good (thus, both produce some amount of each good), and the two countries do not trade. In this case, the United States produces combination B (100 units of food and 25 units of clothing), and Japan produces combination C (30 units of food and 120 units of clothing). No specialization and no trade United States: 100F 25C Japan: 30F 120C 400 Chapter 15 International Trade and Economic Development United States In the second case, in Exhibit 15-3(b), each country specializes in the production of the good in which it has a comparative advantage, and then it trades some of that good for the other good. The United States produces combination A (150 units of food and 0 units of clothing), and Japan produces combination D (0 units of food and 180 units of clothing). Then the countries decide that the United States will trade 40 units of food to Japan in return for 40 units of clothing. 15 (390-427) EMC Chap 15 11/18/05 9:12 AM Page 401 Countries trade 40F for 40C After trade, the United States ends up with 110 units of food and 40 units of clothing. Japan, in turn, ends up with 40 units of food and 140 units of clothing. Specialization and trade United States: 110F 40C Japan: 40F 140C In which case are Japan and the United States better off? The answer is the second case in which they specialize and then trade. In the first case (no specialization and no trade), the United States ended up with 100 units of food and 25 units of clothing, whereas in the second case, it ended up with 110 units of food and 40 units of clothing. In other words, through specialization and trade, the United States ended up with more of both food and clothing. Benefits to United States of specialization and trade 10 more units of F 15 more units of C The same is true for Japan. In the first case, it had 30 units of food and 120 units of clothing, whereas it ended up with 40 units of food and 140 units of clothing in the second case, through specialization and trade. Benefits to Japan of specialization and trade 10 more units of F 20 more units of C Thus, if countries specialize in the production of the goods in which they have a comparative advantage and then trade some of these goods for other goods, they can make themselves better off. QUESTION: Suppose one country in the world is better at producing all goods. In other words, it can produce more of all goods with a given amount of resources. Would this country still be better off trading with other countries? ANSWER: Yes. Instead of thinking of this example on a country basis, let’s think of it on an individual basis. Suppose a person is a brain surgeon. She is a very good brain surgeon, but then she is good at almost everything she does. For example, not only is she a good brain surgeon, but she’s also good at changing the oil in her car, washing her clothes, cleaning her house, mowing the lawn, fixing the faucet in the bathroom, and so on. Does it follow that because she is, say, better than most plumbers when it comes to fixing bathroom faucets, that she should fix her own bathroom faucet instead of calling a plumber? Not at all. Most likely she can benefit from calling a plumber and devoting her time to brain surgery instead of fixing the faucet. Our point is a simple one. Even if you find a person who is better at doing everything than everyone else, still this person is made better off by doing the one thing he or she is the best at doing, and purchasing the services of other people to do other things. The same thing is true for a country. Even if one country could produce everything better than other countries, still it would benefit this country to do what it does best, and then trade with other countries. I have another question about trade. Isn’t it the case that if we (in the United States) don’t produce as many different goods...
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