International Trade Debate Part 1

International trade is an important aspect of the world today. Unrestricted international trade has opened many doors for some countries. When a country looks at possible international trade, that country must look at the comparative advantages to decide what to trade and to whom to trade with.

“Economists use the term comparative advantage when describing the opportunity

cost of two producers” (Mankiw, 2004, p52). If one looks at two different countries, one may see that each country produces several of the same goods. To eliminate the cost of producing the different items the countries may compare their opportunity cost, labor laws, and cost of labor to decide on what item each country may be better at providing. If each country specializes in producing a lower number of goods and trade to receive the extra goods that they stopped producing, then this will cut the production cost and still give the country a wider variety.

When a country concentrates on producing fewer types of goods, but in larger quantity for trade, the country can increase jobs causing a lower number of low income families. The increased quantity of a good lets the county open doors to other countries to trade with causing an increase in choices of goods for the consumer.

Differences in opportunity cost and comparative advantage create the gains from trade. When each person specializes in producing the good for which he or she has a comparative advantage, total production in the economy rises, and this increase in the size of the economic pie can be used to make everyone better off. (Mankiw, 2004, p.52)

Reference:

Mankiw, N. G. (2004). Principles of economics (3rd ed.). Chicago, IL: Thomson South-Western. Chapter 3.