As you have learned in this unit, the theory of comparative advantage underlies international trade. A nation has a comparative advantage in the production of a good if it can produce it at a lower opportunity cost than its trading partner(s). This means that the nation does not have to be the most efficient in the production of the good, but it must be least inefficient in its production.
This theory explains why advanced economies such as the United States still import many goods from nations which have more primitive technology, less capital, and lower-skilled labor forces. Though some of these nations may be absolutely worse in the production of all goods than the U.S., we will find it advantageous to import from them the goods in which they are least inefficient, and they will find it advantageous to buy from us the goods in which the U.S. has comparative advantages. Presuming that international trade is efficient and relatively free of barriers, current trade patterns should indicate the comparative advantages among nations.
Follow this link http://www.census.gov/foreign-trade/statistics/product/enduse/index.html (Links to an external site.)Links to an external site. to find U.S. Census Bureau data on international trade flows between the United States and other countries. Use first letter of your last name (MY LAST NAME IS CARCHI) to choose one U.S. trading partner and, by examining the amount of exports and imports in each category, select two products which the U.S. or the trading partner have the comparative advantage. Write a brief report (300-500 words) to explain and justify your findings. Recall that a nation may not specialize completely in the goods of its comparative advantage, but it will emphasize production of those goods.
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