Written Assigment II - Essay Example

of Affiliation COMPARATIVE ADVANTAGE Comparative advantage is a theoretical economic concept that was advanced by David Ricardo. It seeks to explain why free international trade has to exist despite the fact that some countries enjoy absolute advantage in production of virtually all products than others. For instance, United States produces both computers and textile products at relatively lower costs per unit than China. Nonetheless, Ricardo explains that this does not imply that U.S. should focus only on exportation of these products while China settles on the importation.

Instead, U.S. has the obligation to consider the comparative advantage of producing the two products. The one that enjoys a higher comparative advantage, for instance computers, should form the primary export while textile, whose production has a lower comparative advantage, should be imported from China (Frederking 3). In this paper, I hold a contrary view to Patrick Buchanan by supporting Ricardo’s theory. Countries chose to engage in international trade with a view of making profits. It would be totally illogical to engage in a business activity where there is no overall profit.

As such, the driving force of international trade is the hope of maximizing profits accrued in the production of a given product. In this view, nations engaged in international trade strive to strike a balance by increasing the unit value they gain by exporting a given product. While this takes place, the same country would strive to reduce its engagements in products that do not earn as much profit as the others by the virtue of their production costs. Therefore, in an international trade, a country which exports gains more than that which imports.

This is because exporting countries enjoy a favorable balance of payment than those which import (Ritchie 19). The utility derived from utilizing factors of production differs in the production process of different products. For instance, in the case of computers and textile products, it is evidently cleat that United States of America spends less per unit of factors of production when it concentrates on computers than when it concentrates on textile products. In this sense, U.S. is bound to increase its overall profit if it converts the factors of production used in the manufacture of textile products to the manufacture of computers.

As such, textile industry becomes the opportunity cost of production of computers. Similarly, China is bound to increase its profitability if U.S. chooses to concentrate on importing its textile products. As such, free trade based on comparative advantage becomes a profitable engagement for both nations (Maneschi 23). In conclusion, comparative advantage is a system of trade that encourages countries to specialize. It advocates for trading partners to weigh their unit production cost of a given products relative to the unit cost of producing the same products in a different country.

Afterwards, those countries with absolute advantage in producing most of the products should only concentrate in producing those that have the least cost in so far as factors of production are concerned. The production of the foregone alternative should be left for the other nations (Stern 87). In such a case, for instance, United States can maximize its profits by focusing only in the production of computers instead of textile products. Similarly, its trading partner, China, can maximize its profits by choosing to concentrate in the production of textile products.

Works CitedRitchie, John and Crouch Geoffrey. The competitive destination [electronic resource]: a sustainable tourism perspective. New York, NY: CABI, 2003. Print. Maneschi, Andrea. Comparative Advantage in International Trade: A Historical Perspective. Chicago: Edward Elgar Publishing, 1998. Print. Stern, Robert. Comparative Advantage, Growth, and the Gains from Trade and Globalization. London: World Scientific, 2011. Print. Frederking, Johannes. Comparative Cost Advantage and Factor Endowment: Are These Theories Still Relevant?

New York, NY: GRIN Verlag, 2010. Print.