Why is it less beneficial for a country to trade in primary products and raw materials than in technology, manufactured goods, or services?
Added by Brian M.
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This means that the profit margins are generally smaller for countries that rely heavily on exporting raw materials. Show more…
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(Related to Solved Problem 7.3) A political commentator makes the following statement: The idea that international trade should be based on the comparative advantage of each country is fine for rich countries like the United States and Japan. Rich countries have educated workers and large quantities of machinery and equipment. These advantages allow them to produce every product more efficiently than poor countries can. Poor countries like Kenya and Bolivia have nothing to gain from international trade based on comparative advantage.
Juan N.
(Related to Solved Problem 7.3 on page 222 ) A political commentator makes the following statement: The idea that international trade should be based on the comparative advantage of each country is fine for rich countries like the United States and Japan. Rich countries have educated workers and large quantities of machinery and equipment. These advantages allow them to produce every product more efficiently than poor countries can. Poor countries like Kenya and Bolivia have nothing to gain from international trade based on comparative advantage.
Comparative Advantage and the Gains from International Trade
How Countries Gain from International Trade
Technology increases productivity in three ways. First, it relieves us from having to waste time doing things for which we are not very productive. Second, when we do something over and over again, we get increasingly better at it. And third, it minimizes what economists call transaction costs. An economist would say that trade is mutually beneficial. That means that rather than being a zero-sum game, trade benefits both parties simultaneously. In a modern economy, trade requires a "double coincidence." That is, the buyer must find a seller who has what he wants and the seller must also want what the buyer has to trade. Technology reduces this necessity to a single coincidence.
Crystal W.
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