This preview shows page 1. Sign up to view the full content.
Unformatted text preview: can produce.
United States Japan A: 150 food,
B: 100 food,
25 clothing C: 30 food,
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.
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.
the good for which it has
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
TRADE Food Food Clothing
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
View Full Document