# Tag Info

18

A classic example is to consider the question Why doesn't Tiger Woods mow his own lawn? Woods is an excellent golf player. But he also may be excellent at mowing. Still, if he devotes time to mow the lawn he sacrifices time playing golf, in which he is much more productive. A gardener who is skilled at mowing lawns but not at playing golf sacrifices ...

5

It's fine to make a supposition that it costs Colombia twice as much to make cars as coffee, and Japan twice as much to make coffee as cars. It's also fine to express these ratios in terms of the respective local currencies. The apparent problem you describe only arises because you go beyond the above and express the costs in terms of a common currency ...

5

You have, at least, 2 players. (To be able to compare them). You have, at least, 2 goods, Q1 and Q2. (If you have only one you can make a conclusion only about absolute advantage.) Each player is capable to produce both goods. Intuition A. To understand absolute advantage, note that both players have the same amount of resources. This fact usually is not ...

4

Comparative advantage doesn't work like that. If person A's CA is cooking, person C has a comparative advantage in foraging. With B, C has a comparative advantage in cooking. It's not possible to have a comparative advantage or comparative disadvantage in everything: If you were better at everything than someone else, you would have an absolute advantage. ...

4

Let's look at two companies capable of producing gemstones. Company A has machinery that produces quartz gemstones which it can sell at \$100/stone. It costs$10/stone in raw materials and \$20/stone in operating costs to produce the stones. Company B has uses different machinery, but also produces quartz gemstones with identical \$100/stone sales and ...

3

The mistake that you are doing is that you are treating the numbers in the table below that I assume you took from wikipedia as quantities that can be produced but they are not Cloth Wine England 100 120 Portugal 90 80 Wikipedia states that in the problem they present these are "hours of work necessary to produce one unit" of given goods. ...

3

The basic result about the effect of trade on income distribution is Stolper-Samuelson in the Heckscher-Ohlin model, which says that trade liberalization is associated with a rise in the prices of the factors of production that are used intensively in the production of goods the country has a comparative advantage in, and vice versa. If you take "skilled" ...

2

You might be confusing comparative advantage with absolute advantage. Comparative advantage is focused on opportunity costs. You are assuming that person A is good at cooking, B is good at foraging, and C is a good-for-nothing. However, no matter how lousy C is at both the skills, he still possesses them. So in this comparison, take a look at the following ...

2

In the three person economy, if all three people are equally good at cooking and foraging then they have neither absolute nor comparative advantages. But that's unlikely to be an economically important situation in a real economy with many jobs to do and many forms of skill and ability.

2

Daly actually does explain further what he means by that in footnote 7 of his paper: Capitalists are interested in maximizing absolute profits and therefore seek to minimize absolute costs. If capital is mobile between nations, it will move to the nation with lowest absolute costs. Only if capital is internationally immobile will capitalists bother to ...

2

First of all, there is no need to believe any economic dogma. The real world is usually more complicated than these stories. If anyone can convince me of something with a two minute anecdote, that was probably not an important aspect of my world view, and I should probably not engage in setting such policy. (E.g. via voting for the person who tells the same ...

2

Without more information on producers (such as their production functions) and consumers (their utility functions), we cannot compute the optimal levels of production and trade The point of this simple numerical example is merely to illustrate the key and surprising insight behind the principle of comparative advantage: Even if the US is better than China ...

2

Its not correct to say that production will be lower in the solution to the Ricardian model (in your case full specialization of US is not equilibrium outcome). In general in Ricardian model the production after specialization will always be either the same (if the relative opportunity costs are exactly same) or production will be higher. The reason why you ...

1

this is attributed to better computer-production technology in the US. But what is that technology? Is it better physical capital, in the form of computer-building machines? Is it better human capital? In a sense yes. For example, typical Cobb-Douglas function with capital labor and human capital would look like this: Y = A K^{\alpha} L^{\beta} H^{1-\...

1

Daly gets a lot wrong, including (in my view) the idea that capitalists pursue absolute profits in an economy that rests on fiat currencies and foreign exchange markets. Indeed, the very notion of opportunity cost implies that it is relative, not absolute, costs that matter most to the rational agent. Does the capitalist seek the lowest absolute cost, or ...

1

You did not factor in the 4 Darwinian goals of global trade: Find foreign markets to absorb excess production, that is, where excess production can be dumped. Extract foreign resources at low prices. Deny geopolitical rivals access to these resources. Open foreign markets to domestic capital and credit so domestic capital can buy up all the productive ...

1

What traditionally matters is a quasiconcave utility function (that is, the individual/country at least weakly prefers mixing such that all better sets are convex). I assume that's what you're referring to when you describe the Cobb-Douglass example. Though I believe your comment about the functional form of utility is overall correct. If, for example, the ...

1

International Economics: Theory and Policy by Krugman, Obstfeld, Melitz meets part of your requirement. The chapter on comparative advantages discusses two countries with several goods. I have to admit I am not sure what adding more than two countries would bring to the mix unless you want to change the equilibrium concept. In response to your edit: ...

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