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5.04 Why Do Countries Trade?

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Jacob Benvenutty

on 2 November 2015

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Transcript of 5.04 Why Do Countries Trade?

5.04 Why Do Countries Trade?
United States of America
South Africa
Romania

Developing Country
Corn
6
Citrus
10
Number of additional worker hours to produce one unit of citrus instead of one unit of corn
Higher comparative advantage
Corn
2
4
Citrus
Number of additional worker hours to produce one unit of citrus instead of one unit of corn
Higher comparative advantage
Developing Country
Corn
Citrus
8
10
Number of additional worker hours to produce one unit of citrus instead of one unit of corn
Equal comparative advantage
to United States
Analysis
Apparel
Computer Software
2
4
Number of additional worker hours to produce one unit of computer software instead of one unit apparel
Equal comparative advantage
to Romania.
Number of additional worker hours to produce one unit of computer software instead of one unit of apparel.
Higher comparative advantage
Computer Software
12
4
Apparel
Apparel
Computer Software
6
8
Equal comparative advantage
to United States
Number of additional worker hours to produce one unit of citrus instead of one unit of corn
The United States has an absolute advantage when compared to both Romania and South Africa. As it takes less worker hours to produce each resource. This is most likely due to the abundant amount of resources the US has when compared to the countries in these specific resources.
The United States also has a comparative advantage over South Africa, as it takes less additional workers hours to produce each resource. For example, it only takes (2) additional worker hours in order to produce corn and citrus, while it takes double that (4) for South Africa.
C. Most trade happens because of comparative advantage; this is due to the fact that some countries produce faster and more cost efficiently than others. Naturally the country with higher efficiency in a specific resourse will then specialize respectively. This is what trade depends on. This also benefits each country within the trade agreement, especially if both countries produce what the other needs. For example, since Ecuador has a higher comparative advantage in crude oil production than that of the US, in order to maximize efficiency it would be of benefit to both parties if a trade agreement was made.
Developed country
A.
B.
C.
Full transcript