COMPARATIVE ADVANTAGE AND INTERNATIONAL TRADE

Opportunity cost and comparative advantage are two factors which have to be taken into consideration in trade so as profits and other accompanying benefits can be realized. This applies both to local and international trade.

When Obama said that people don’t want cheaper T-shirts when they are losing jobs in the process, he was talking of the importation of cheaper commodities from other countries which were literally occupying the market which would have been occupied by locally manufactured goods. However much expensive the locally manufacture goods may be, it would be economically wise to continue buying them as it is creating a market for locally manufactured goods. Thereby, ensuring that the people employed in this industries do not lose their jobs.

Economically speaking, the imported cheaper goods have an absolute advantage over the locally manufactured expensive goods. However, in buying those goods, we should consider the opportunity cost which comes in the form of job losses. This gives the locally manufactured goods a comparative advantage as in the process of buying them; we are able to maintain these jobs (Schumacher, 2012).

Therefore, it is much wiser to consume local goods however much expensive they may be, but in the process helping to maintain locally produced goods and by extension securing the jobs.

This applies directly to the international trade as it is from such a trade that relatively cheap goods compared to the local ones can be acquired. However, such a trade should be controlled in the case whereby it is threatening the job creation as a result of their low pricing of goods which leads to unfair competition with locally manufactured goods.

Generally international trade should go hand in hand with opportunity cost. A sound government should not expose its citizens to unfair trade and other factors which will lead to job losses just for the sake of promoting international trade.

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