Essay on The Theory of Comparative Advantage - 766 Words

Buy American. In recent years, and especially since the recession, this has been the mantra of ‘patriots’ across the nation. The recent jobs bill that went through Congress may even have subsidies to encourage it. But what effect would buying products made in the United States really have? Would it create jobs for Americans? Would it save the flailing auto industry? Or would it ultimately hurt our economy? According to the Theory of Comparative Advantage, the latter could be true. Rather than only buying merchandise from the US, we should refocus our workforce towards industries in which we have an advantage and trade for products created abroad. This is the only way that our global economy can flourish in the long run. Why does buying†¦show more content†¦But is it really? Economics tells a very different story. While it is imperative that we create more jobs for Americans, this is only a temporary bandage over the much larger wound in the system. According to the Theory of Comparative Advantage, self-sufficiency is never the most efficient way to survive. The United States must expand its trade with other countries. In fact, this took place in December of last year; exports from the United States grew by 3% from the month before, probably because the weak dollar made American commodities more appealing. However, Americans responded as you might expect: by spending that windfall on even more foreign goods. It is still encouraging that exports have risen at all, though. It is a sign that there is still hope. What about the failing American auto industry? Ultimately, they are in markets in which the United States does not have a comparative advantage. For decades Japan, Germany, and others have been at the forefront of the auto industry, with enormous advances in quality and fuel efficiency. During the same period, Americans developed the Hummer. Additionally, General Motors and Chrysler received billions of dollars from the federal government to try to save the jobs of the people that they employed. That represents a huge investment that the auto manufacturers are unlikely to return in full. This was a monumental waste. We should simply relinquish the auto market to otherShow MoreRelatedInternational Trade Theory Of Comparative Advantage And Absolute Advantage1485 Words   |  6 PagesSeveral theories about international trade explain why countries have the opportunity to trade, theory of comparative advantage and absolute advantage. Adam Smith came up with the theory of absolute advant age where the country that produces more of one good that another country has simply an absolute advantage over it. This theory normally constructed with two commodities and two countries. In Schuhmachers article â€Å"Adam Smith’s theory of absolute advantage and the use of doxography in the historyRead MoreThe Theory Of Comparative Advantage By David Ricardo1419 Words   |  6 PagesEconomists have promoted free trade since the conceptualization of the theory of comparative advantage by David Ricardo in the early nineteenth century. The policy implication of Ricardo’s theory was a transition from trade protection to free trade. As an academic concept the theory is one of static general equilibrium, however the model does not provide any logical framework for dealing with factors such as technology gaps, or strong competition from developed countries. The model’s static and simpleRead MoreDavid Ricardo s Theory Of Comparative Advantage1504 Words   |  7 Pa gesDavid Ricardo is a well-known economist who found it hard to make his big break in the field of economics. He created the â€Å"Theory of Comparative Advantage†, or free international trade. His ideas he had were hard for people to grasp, and understand at the time, and even today. Over his career, he encountered some struggles, but he kept doing what he thought was right, and fair, and in the end he was successful. David Ricardo was born in London in 1772. He grew up in a large family with more thanRead MoreA Traditional Trade Theory Based On Comparative Advantage1781 Words   |  8 Pagestraditional trade theory based on comparative advantage(e.g. Ricardian and Heckscher-Ohlin model) has been criticised for its ineffectiveness in explaining the trade flow between industrialised countries and the exchange in differentiated products. This gives rise to a new trade theory which incorporates the scale of economies, product differentiation and imperfect competition into the discussion of trade pattern as a complement to the conventional theory(Krugman, 1980). While standard trade theory assumesRead MoreThe World Trade Organization and The Theory of Absolute and Comparative Advantage 2197 Words   |  9 PagesWhy the famous theory of absolute and comparative advantages did not work when the GATT and WTO were created? In the world of internationalization and globalization, which worships money and encourages ever growing trade, it is very difficult to find a model and further implement it into the modern system so that it would be efficient, eco-friendly and yet economically viable for all participants. Most suggested models are in my opinion out of date and do not answer the current world trends andRead MoreFree Trade Is Beneficial And Grows Economies Due By The Theory Of Comparative Advantage988 Words   |  4 Pagesbeneficial and grows economies due to the theory of Comparative advantage. This theory states that countries should specialize and produce the goods and services in which they are most efficient. This converts a theory in which people see free trade as zero sum game into a positive sum game in which all gain. David Ricardo was the first most to come out with the theory of comparative advantage and he did so almost 200 years ago. His theory was the basis for latter theories to come a nd it was based on the factRead MoreInternational Trade Theory Of Comparative Advantage, Global Operations, Free Trade And Porter s Diamond1673 Words   |  7 Pagescase using theories of international business such as the theory of comparative advantage, global operations, free trade and Porter’s diamond that will be based on the cross-border trade and investment in the world, These theories can be incorporated in the company Logitech, which has made them into one of the world’s leading provider of personal peripherals. This analysis allows the team to develop the knowledge and identify the important implications in which international trade theory can be linkedRead MoreThe Concept of Comparative Advantage1459 Words   |  6 Pages The comparative advantage The concept of the comparative advantage was first coined in 1817 by economist David Ricardo, in his On the principles of political economy and taxation. The underlying idea of the comparative advantage theory is that the countries possess different resources and capabilities and they can produce some specific items in a more efficient manner than other countries can produce the same items, or more efficiently that the same country can produce other items. In suchRead MoreMajor Trade Theories888 Words   |  4 PagesTrade theories Introduction The concept of absolute advantage is one of the most fundamental areas of concern in the study of economics. In its basic meaning, absolute advantage refers to the ability of one individual or party to produce more of a particular good or service than other competitors given the same amount of resources. In this regard, absolute advantage becomes a very important aspect in the concept of international trade as it clearly defines the different areas where countries shouldRead MoreComparative Advantage - Essay1530 Words   |  7 Pagesthe idea of comparative advantage provide a good explanation of current patterns of international trade? For the last two centuries the international trade evolved a lot and many economists tried to explain it. One of the first theories that attempted to explain the international trade pattern was the Absolute advantage theory. A.Smith was a great economist; he is the one who created this theory. For A. Smith countries should specialize in products in which they have an absolute advantage. It was a