Oct 08 2010

The clear and simple gains from trade

Russell Roberts of George Mason University is a well-known advocate of free trade. This article is one of my favorite and certainly one of the clearest explanations of the mutual benefits resulting from free trade that I have read.

Foreign Policy: Why We Trade – by Russ Roberts

To hear most politicians talk, you’d think that exports are the key to a country’s prosperity and that imports are a threat to its way of life. Trade deficits—importing more than we export—are portrayed as the road to ruin… Politicians are always talking about the necessity of other countries’ opening their markets to American products. They never mention the virtues of opening U.S. markets to foreign products.

This perspective on imports and exports is called mercantilism. It goes back to the 14th century and has about as much intellectual rigor as alchemy, another landmark of the pre-Enlightenment era.

The logic of “exports, good—imports, bad” seems straightforward at first—after all, when a factory closes because of foreign competition, there seem to be fewer jobs than there otherwise would be. Don’t imports cause factories to close? Don’t exports build factories?

But is the logic really so clear? As a thought experiment, take what would seem to be the ideal situation for a mercantilist. Suppose we only export and import nothing. The ultimate trade surplus. So we work and use raw materials and effort and creativity to produce stuff for others without getting anything in return. There’s another name for that. It’s called slavery. How can a country get rich working for others?

Then there’s the mercantilist nightmare: We import from abroad, but foreigners buy nothing from us. What would the world be like if every morning you woke up and found a Japanese car in your driveway, Chinese clothing in your closet, and French wine in your cellar? All at no cost. Does that sound like heaven or hell? The only analogy I can think of is Santa Claus. How can a country get poor from free stuff? Or cheap stuff? How do imports hurt us?

We don’t export to create jobs. We export so we can have money to buy the stuff that’s hard for us to make—or at least hard for us to make as cheaply. We export because that’s the only way to get imports. If people would just give us stuff, then we wouldn’t have to export. But the world doesn’t work that way.

It’s the same in our daily lives. It’s great when people give us presents—a loaf of banana bread or a few tomatoes from the garden. But a new car would be better. Or even just a cheaper car. But the people who bring us cars and clothes and watches and shoes expect something in return. That’s OK. That’s the way the world works. But let’s not fool ourselves into thinking the goal of life is to turn away bargains from outside our house or outside our country because we’d rather make everything ourselves. Self-sufficiency is the road to poverty.

And imports don’t destroy jobs. They destroy jobs in certain industries. But because trade allows us to buy goods more cheaply than we otherwise could, resources are freed up to expand existing opportunities and to create new ones. That’s why we trade—to leverage the skills of others who can produce things more effectively than we can, freeing us to make things we otherwise wouldn’t be able to afford.

Discussion Questions:

  1. “Self-sufficiency is the road to poverty” – Discuss…
  2. Explain the logical economic fallacy of the mercantilist philosophy of “exports good, imports bad”
  3. “…because trade allows us to buy goods more cheaply than we otherwise could, resources are freed up to expand existing opportunities and to create new ones”. What basic economic principle is Professor Roberts alluding to here?

About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author

77 responses so far

77 Responses to “The clear and simple gains from trade”

  1. Katrinaon 30 Nov 2010 at 9:43 am

    1. "Self sufficiency is the road to poverty" refers to why trade, and imports, benefit a country in the long run. A country imports goods because those goods can be made for a cheaper cost, and faster, abroad than within itself. Thus, a country can spend more of its time focusing on making goods that they have a comparative advantage in, which could be sold as exports. If this give-and-take relationship was not present in an economy, than that economy would spread itself too thin, wasting its time and lacking the wealth that it could have had, had free trade been implemented.

    2.Niether exports nor imports are bad or good, so long as there is a balance of both. Imports are necessary for a country to be able to focus on producing the goods and services that they are more adept at producing. Then those goods, which they made, must be exported to earn money to pay for the imports. It's a reciprocal relationship, and neither side of it should be disabled.

    3. The economic principle that Professor Roberts seems to be alluding to is creative destruction. As a country becomes more efficient by importing cheaper goods, people in some industries will lose their current jobs. However, with time, a number of those workers will find new jobs producing the goods and services that their country is more in need of.

  2. Aly W.on 30 Nov 2010 at 1:18 pm

    1. If a country is entirely self sufficient, it loses out on many benefits of trade, such as importing goods that another country can produce more easily, or cheaper.

    2. There needs to be a balance of imports and exports. Imports allow a country to focus on the goods they can produce easily/cheaply and import from others the goods that are harder/more expensive for them to produce. While exports provide the country a way to obtain imports.

    3. I believe Professor Roberts is alluding to economic growth, because we are getting goods more cheaply and are now able to focus on expanding other goods.

  3. Thomason 23 Sep 2011 at 5:23 pm

    1. “Self-sufficiency is the road to poverty” – Discuss…

    I disagree with this statement. If a government introduces protectionist policies it doesn't benefit from free trade, but that won't necessarily lead to poverty. However opportunities are being lost as the nation's consumer's are not able to consume beyond the countries' production possibilities curve. If you consider the example we discussed in class during the last period you can see that even though, the UK and China would benefit from trading with each other as both countries could focus on just producing one kind of goods they wouldn't be in poverty if they decide to produce both kinds of goods. However I think that free trade is better than mercantilist policies.

    2. Explain the logical economic fallacy of the mercantilist philosophy of “exports good, imports bad”.

    Imports are necessary for free trade to occur. Importing goods means that a nation can receive more goods at low prices and that consumers can consume beyond the nation's production possibilities curve. Mercantilists seem to just focus on the idea of imports leading to unemployment as domestic producers cannot compete with producers outside the country, which offer the same product at a lower price. However the import of e.g. resources could lead to more employment in other sectors of the economy.

    3. “…because trade allows us to buy goods more cheaply than we otherwise could, resources are freed up to expand existing opportunities and to create new ones”. What basic economic principle is Professor Roberts alluding to here?

    Professor Roberts refers to the principle of comparative advantage, which is the ability of a nation/producer to produce something at a lower opportunity cost than another nation/producer. However he could refer to economic growth too, as he is mentioning the expansion of existing opportunities and the creation of new ones.

  4. Debbieon 23 Sep 2011 at 5:41 pm

    1. “Self-sufficiency is the road to poverty” – Discuss…

    If a nation is doing everything themselves they have no way of growing economically, as they can't invest in new land, labor, capital. Also if the nation does not export anything they will not be able to gain money to import anything either.

    2. Explain the logical economic fallacy of the mercantilist philosophy of “exports good, imports bad”

    "after all, when a factory closes because of foreign competition, there seem to be fewer jobs than there otherwise would be. Don’t imports cause factories to close? Don’t exports build factories? "

    3. “…because trade allows us to buy goods more cheaply than we otherwise could, resources are freed up to expand existing opportunities and to create new ones”. What basic economic principle is Professor Roberts alluding to here?

    The principle of comparative advantage

  5. Alexandre Kon 24 Sep 2011 at 10:31 am

    1.“Self-sufficiency is the road to poverty” – Discuss…

    When writing this article, Russell Roberts probably slightly exaggerated by claiming that "self-sufficiency is the road to poverty". I personally do not fully agree with this statement, but I would agree that self-sufficiency does not lead to economic prosperity. If nations are self-sufficient, they will not be able to benefit from trade by producing certain goods at lower opportunity costs than other nations, and thus they cannot grow economically. However, if nations trade, they are able to produce beyond their production possibilities curve.

    2. Explain the logical economic fallacy of the mercantilist philosophy of “exports good, imports bad”

    The mercantilist philosophy claims that imports should not occur, only exports should take place. They believe that imports harm the economy, as the workers in a nation may not be able to compete with imported goods. Following that logic, they believe exports are good as it creates more employment in the economy.

    3. “…because trade allows us to buy goods more cheaply than we otherwise could, resources are freed up to expand existing opportunities and to create new ones”. What basic economic principle is Professor Roberts alluding to here?

    Professor Roberts is alluding to the concept of comparative advantage. This concept is when a nation is able to produce a good at a lower opportunity cost than another nation.

  6. Emma Walwyn Brownon 25 Sep 2011 at 11:22 am

    1.“Self-sufficiency is the road to poverty” – Discuss…

    I think this statement takes a very one sided view of trade and therefore I cannot fully agree with it. Although self-sufficiency will not make an economy prosper like trading does, I don't think it is diabolical for a nation. Trade allows consumers to get goods at lower costs because they are cheaper to produce elsewhere and consume goods that might never be available to them because their country does not have the correct climate or land for such goods. Trade is not all importing but also exporting goods, which means the nation can focus on producing goods at a low opportunity cost and getting revenues from exporting these goods. Trade is very beneficial for a nation and without it I think the nation would not be as economically strong but I don't think it would fall into poverty, just not grow as quickly or as well as a nation that is engaged in trade.

    2. Explain the logical economic fallacy of the mercantilist philosophy of “exports good, imports bad”

    The mercantilist philosophy says that imports are bad because the cheap imported goods will be to high of competition for locals producing that good and therefore will harm local workers because they can't produce a good as cheaply as the good is produced in another nation and imported. Exports are good because they mean higher production and therefore higher employment and they are selling goods to other nations whereas when they import they are paying other nations.

    3. “…because trade allows us to buy goods more cheaply than we otherwise could, resources are freed up to expand existing opportunities and to create new ones”. What basic economic principle is Professor Roberts alluding to here?

    Professor Roberts is alluding to comparative advantage. This is when one nation can produce a good at a lower opportunity cost to another nation for reasons such as a more suited work force, more fitting land requirements for the good or service, or better capital.

  7. Francescaon 25 Sep 2011 at 5:05 pm

    1. self sufficiency might not lead a country to poverty but certainly the country will not be able to enjoy the benefits of trade like lower prices (trade allows consumers and producers to get goods at lower prices because are cheaper to produce in other counties), economies of scale, more available resource and higher efficiency (if countries trade they will be able to produce beyond their PPC)

    2. Mercantilis claim that exports are good for a nation while imports are not. Imports allow a nation to receive more goods at cheaper prices and they are necessary to have free trade.

    3. Professor Roberts is alluding to the principal of comparative advantage that exists if a country can produce a good at a lower opportunity cost than another counrty.

  8. Beatriceon 25 Sep 2011 at 5:24 pm

    1. If a nation chooses to be self-sufficient, it will obviously be producing at higher opportunity costs than if it were to trade; however this will not lead to poverty. Self-sufficiency will not make the nation prosperous and there will not be as much economic growth than in a nation that were to engage in trade. The nation will not benefit from imports of certain goods that it might not be able to produce plus the consumers will not have a variety of different products. It is exaggerated to say that self-sufficiency will lead to poverty.

    2. Exports are seen as good, because the nation will experience trade surplus and exports will create more jobs in the nation. Imports on the other hand will cause unemployment to rise as other nations might be producing the goods at lower costs. Factories will shut down.

    3.Roberts is alluding to comparative advantage, which is when one nation can produce at lower a opportunity cost than another nation.

  9. Cedricon 25 Sep 2011 at 5:39 pm

    1. “Self-sufficiency is the road to poverty” – Discuss…

    I agree to a certain extent that self- sufficiency may lead to poverty but the way that he phrased it, " self- sufficiency is the road to poverty" almost makes it sounds like without trading, a country will surely face poverty. As mentioned before by Alex and Francesca, self sufficiency does not allow a nation to experience economic growth as they will be producing below its PPC and won't be experiencing any of the benefits of free trade. However, self sufficiency does not lead to poverty, instead it wont allow a nation to produce beyond its production possibilities curve.

    2. Explain the logical economic fallacy of the mercantilist philosophy of “exports good, imports bad”

    The logical economic fallacy of the mercantilist philosophy " exports good, imports bad" shows that exports are good because it allows people to have jobs and increase employment in a nation. "Imports bad" state that importing goods are bad because workers might lose their jobs and it could lead to unemployment in a nation, as they would have to compete with imported goods.

    3. “…because trade allows us to buy goods more cheaply than we otherwise could, resources are freed up to expand existing opportunities and to create new ones”. What basic economic principle is Professor Roberts alluding to here?

    The basic economic principle that Professor Roberts is alluding here is comparative advantage because it lowers opportunity costs since a nation's production costs become cheaper."Because trade allows us to buy goods more cheaply than we otherwise could," this shows that the opportunity cost is lower to import that good than to produce it within their own country.

  10. Sarah E.on 25 Sep 2011 at 6:45 pm

    1.“Self-sufficiency is the road to poverty” – Discuss…

    What Russell Roberts mean by this is that a country would spend money on producing goods, in which it doesnt have any advantage in. By trading, a country would get goods at a lower opportunity cost because it is cheaper to produce this good in other countries and export goods which it can produce at a low opportunity cost. A country would benefit from trade and would increase economically.

    2.Explain the logical economic fallacy of the mercantilist philosophy of “exports good, imports bad”

    Exports are good because this means a country has to produce more and will therefore increase both employment and production which means that they "get paid"; whereas import is bad because a country would be paying other countries. In addition, it is also stated that imports are bad because this would harm domestic producers, if competition if goods are imported cheaply.

    3.“…because trade allows us to buy goods more cheaply than we otherwise could, resources are freed up to expand existing opportunities and to create new ones”. What basic economic principle is Professor Roberts alluding to here?

    This means, that a country can produce a good at lower opportunity cost than another country and by trading, it allows country to import goods more cheaply than actually producing it themselves. Professor Roberts is alluding to comparative advantage.

  11. Nathan Pon 25 Sep 2011 at 7:29 pm

    1. If a country were not to export or import, and produce all it's goods locally, it would be unable to prosper as a nation. Because the nation will be producing all the goods it needs itself, the costs, both monetary and opportunity, will be extremely high. These high costs will lead to a state of poverty in the nation because they will be unable to prosper from the opportunity costs that come from trade.

    2. Imports and exports are both good, because a nation will be able to specialise in certain goods, and selling them to other nations, who specialise in other goods, and by those goods from these nations.

    3. Professor Roberts is alluding to the economic principle of comparative advantage, where one country is able to produce certain goods at lower opportunity costs than others.

  12. Pvanderweijdon 25 Sep 2011 at 7:40 pm

    “Self-sufficiency is the road to poverty” – Discuss…

    A historical example of this being the case is of China and Europe from the 15th century onwards: while China had been far ahead technologically and economically, she closed her gates to the outside world in the early 15th century and strove to become completely self sufficient. Europe, and eventually the States, pursued a (often exploitative) policy of trade across the entire globe, and then since the places have been switched. However, that same argument lives on today in the form of North Korea, and is doing better in terms of gdp per capita than, for example, Bangladesh.

    Explain the logical economic fallacy of the mercantilist philosophy of “exports good, imports bad”

    Exports are viewed as the means through which a nation earns an income, while imports are simply costs. Therefore, it makes sense to think that it is desirable to earn more and spend less.

    “…because trade allows us to buy goods more cheaply than we otherwise could, resources are freed up to expand existing opportunities and to create new ones”. What basic economic principle is Professor Roberts alluding to here?

    Opportunity cost.

  13. Susanneon 25 Sep 2011 at 9:16 pm

    1. “Self-sufficiency is the road to poverty” – Discuss…

    -This statement is rather bold in implying that self-sufficiency results in poverty. Trading with other countries, with regard to the comparative advantages, allows a nation to produce outside its production possibilities curve. I agree with many above, that it will be hard or even impossible for a country to experience economic growth whilst being self-sufficient. Poverty, however, is certainly not the alternative.

    2. Explain the logical economic fallacy of the mercantilist philosophy of “exports good, imports bad”

    -Exports allow countries to sell goods and receive money in return. Imports may drive domestic producers out of business, as a result of their lower prices.

    3. “…because trade allows us to buy goods more cheaply than we otherwise could, resources are freed up to expand existing opportunities and to create new ones”. What basic economic principle is Professor Roberts alluding to here?

    -Professor Robert alludes to the comparative advantage principal, which refers to the situation where a country has a lower opportunity cost in the production of a good than another country. As new resources are ‘freed up’ the country can specialize in the production of one particular good and therefore experience the benefits of trade.

  14. Saugata Mittraon 25 Sep 2011 at 10:08 pm

    “Self-sufficiency is the road to poverty” – Discuss…

    The notion that self-sufficiency is the road to poverty is, albeit extreme, true to some extent. Before a country is integrated into the global economy, most of its citizens most likely live in relative or absolute poverty compared to the globally integrated nations. For instance, if Iceland had chosen to continue to be self-sufficient, it would still be a worthless rock in the middle of the ocean.

    Explain the logical economic fallacy of the mercantilist philosophy of “exports good, imports bad”

    To export goods is to make money that is allocated towards resources that cannot be made in the nation. Therefore, importing goods, by extension, perpetuates trade.

    “…because trade allows us to buy goods more cheaply than we otherwise could, resources are freed up to expand existing opportunities and to create new ones”. What basic economic principle is Professor Roberts alluding to here?

    Professor Roberts is alluding to the basic economic principle of opportunity cost.

  15. Maphridaon 25 Sep 2011 at 10:19 pm

    1. “Self-sufficiency is the road to poverty” – Discuss…

    I like this article because it gave me a different outlook on the concept of "imports" and "exports". If a nation is self-sufficient, it does not depend on foreign output, it only provides for itself. Although this can be seen as a positive thing — YAY jobs for the nation (opposite of poverty right)! But we NEED imports to manufacture and produce certain goods. A nation cannot possibly depend on its own resources, as they may not be adequate. And also there is also a risk of demand not meeting supply or vice versa. And in this case, Self-sufficiency could possibly lead to, not poverty (that is extreme), but unemployment. The nation may not be able to provide what its people want, and also variety in general could be lost. There would be innumerable consequences if self-sufficiency was practiced throughout the whole world (which I will not get into right now).

    2. Explain the logical economic fallacy of the mercantilist philosophy of “exports good, imports bad”

    Exports are "good", because they generate income/revenue. Imports are "bad" because they consume the income/revenue earned by exports. But my question is, Isn't the point to MAKE money, to SPEND it? So i do not believe that a nation should stop importing goods because imports are negative for a nation's economy.

    3. “…because trade allows us to buy goods more cheaply than we otherwise could, resources are freed up to expand existing opportunities and to create new ones”. What basic economic principle is Professor Roberts alluding to here?

    I couldn't have said it better myself Phillip. "Opportunity cost."

  16. Kristyon 25 Sep 2011 at 10:45 pm

    1. “Self-sufficiency is the road to poverty” – Discuss…

    Robert's claim that self-sufficiency leads to poverty, is indeed logical. We export, not because we enjoy it, but because it's a means to an end, to import. Although a nation may be richer if they only exported and never imported, they would almost certainly be worse off as they would not be able to spend all this extra cash on anything they wanted, or if they could it would be far more expensive than it need be because the nation would have to produce it themselves. As Roberts puts it "we trade—to leverage the skills of others who can produce things more effectively than we can, freeing us to make things we otherwise wouldn’t be able to afford.

    2. "Explain the logical economic fallacy of the mercantilist philosophy of “exports good, imports bad”

    Exports good, imports bad", upon first glance, makes perfect sense. Exports bring in money while imports let out money, but as we know imports allow us to have things we ordinarily couldn't, or at a lower cost, thus we now know the notion to be false.

    3. “…because trade allows us to buy goods more cheaply than we otherwise could, resources are freed up to expand existing opportunities and to create new ones”. What basic economic principle is Professor Roberts alluding to here?

    Roberts is alluding to opportunity cost

  17. Philippaon 26 Sep 2011 at 12:15 am

    1. “Self-sufficiency is the road to poverty” – Discuss.

    In the world today, there is a reason why everyone doesn’t grow their own food, make their own clothes or build their own home. This claim, although extreme, does make sense on a global scale. Nations and individuals can be most productive by specializing in a certain field, then sharing, or trading, that specialty with another. Nations can access what they are best at producing, or in economic terms, find where their comparative advantage lies, and therefore produce this at a high quality. If all nations do this then trade with one another, theoretically everyone receives what they need, at a high quality. The connection between being integrated into the global economy and being a wealthy nation is clearly seen in the ‘Bottom Billion’ countries in Africa for example, whose population live in absolute poverty because they are not globally integrated.

    2. Explain the logical economic fallacy of the mercantilist philosophy of “exports good, imports bad”

    Exports are an injection into the circular flow, increasing GDP, whereas imports are a leakage of money from the circular flow into the GDP of a different country. Therefore, it can be deduced that exports are good for a nation whereas imports are bad.

    3. “…because trade allows us to buy goods more cheaply than we otherwise could, resources are freed up to expand existing opportunities and to create new ones”. What basic economic principle is Professor Roberts alluding to here?

    The principle that a country can produce a certain good at a lower opportunity cost than another, making it cheaper to import than to produce in your own country is the principle of comparative advantage.

  18. Orpaon 26 Sep 2011 at 12:48 am

    1. “Self-sufficiency is the road to poverty” – Discuss…

    This statement is true to a certain, if a nation became self sufficient an thus closed their boarders, the quality of the their produce would drop as well as the variety, and they will have higher opportunity costs. A nation that trades can specialize in certain product or service, and then trade this with other nations who have specialized in a different product or service and lower opportunity costs. Though a nation maybe better at producing both by specializing the variety and quality increases and the price may decrease. Thus this statement is partially correct however the word poverty is too strong a word, because self sufficiency is simply not the most efficient way of getting products or service.

    2. Explain the logical economic fallacy of the mercantilist philosophy of “exports good, imports bad”

    Well while exports bring money into the economy and thus increases the amount of money circulating in the economy, where as imports are costs and thus are taking money out of the nations economy, hence they are 'bad'.

    3. “…because trade allows us to buy goods more cheaply than we otherwise could, resources are freed up to expand existing opportunities and to create new ones”. What basic economic principle is Professor Roberts alluding to here?

    Professor Robert is alluding to the basic economic principle of opportunity costs.

  19. Davidon 26 Sep 2011 at 9:11 am

    1. No Mather what someone does if they are selfish and don’t trade it will be not be as many said the road to poverty, but more likely a cycle in which it is not possible to increase standard of living. As the view of an economic student, indeed self-sufficiency is the road to poverty. There are certainly nations in the world that are better at least in one thing. This means that we “use” them and they “use” us as the key to economic growth. This is the start of free trade.

    2. ”Exports good, imports bad”

    Imports are certainly a positive thing to a certain extent. Imports provide a nation, a variety of goods and services which are many times highly demanded. Exporting goods and services mean profits. Importing goods and services mean spending. If we only look at import and exports like this the quote is correct. But there is more behind export and imports.

    3. Professor Roberts is referring to the economic principle of comparative advantage. This means that one country is able to produce a certain good or service at a lower opportunity cost than the other nation.

  20. Davidon 26 Sep 2011 at 9:12 am

    1. No Mather what someone does if they are selfish and don’t trade it will be not be as many said the road to poverty, but more like a cycle in which it is not possible to increase standard of living. As the view of an economic student, indeed self-sufficiency is the road to poverty. There are certainly nations in the world that are better at least in one thing. This means that we “use” them and they “use” us as the key to economic growth. This is the start of free trade.

    2. ”Exports good, imports bad”

    Imports are certainly a positive thing to a certain extent. Imports provide a nation, a variety of goods and services which are many times highly demanded. Exporting goods and services mean profits. Importing goods and services mean spending. If we only look at import and exports like this the quote is correct. But there is more behind export and imports.

    3. Professor Roberts is referring to the economic principle of comparative advantage. This means that one country is able to produce a certain good or service at a lower opportunity cost than the other nation.

  21. Chris Bertramon 26 Sep 2011 at 9:30 am

    • “Self-sufficiency is the road to poverty” – Discuss…

    A country will waste its resources by producing products that it is not good at. Instead of producing products that are cheap for a nation to produce, labor is wasted on goods that it is not good at when producing. Instead, a country should trade with a nation that is good at producing a certain good. The country that imports will get the goods at a lower opportunity cost and use the free labor to produce goods that it is good at.

    • Explain the logical economic fallacy of the mercantilist philosophy of “exports good, imports bad”

    Exports are good as unemployment is reduced and there is money flowing into the economy. Imports are bad in the sense that money is leaking out of the economy. In addition, the domestic economy might be harmed by the greater competition.

    • “…because trade allows us to buy goods more cheaply than we otherwise could, resources are freed up to expand existing opportunities and to create new ones”. What basic economic principle is Professor Roberts alluding to here?

    Professor Roberts is alluding to the economic principle of opportunity cost.

  22. Reem Hassanon 26 Sep 2011 at 10:19 am

    1. “Self-sufficiency is the road to poverty” – Discuss…

    This is a true statement. Nowadays, a person specializes in a certain field they are most productive in. If a nation were to do everything and close their boarders, just like Orpa said, "the quality of their production would drop as well as the variety, and they will have higher opportunity costs." Thus exporting allows a nation to be able to import and producing things more efficiently.

    2. Explain the logical economic fallacy of the mercantilist philosophy of “exports good, imports bad”

    If a nation is exporting more than importing, this causes an injection in the circular flow of money. If a nation is importing more than exporting, this causes a leakage in the circular flow of money.

    3. “…because trade allows us to buy goods more cheaply than we otherwise could, resources are freed up to expand existing opportunities and to create new ones”. What basic economic principle is Professor Roberts alluding to here?

    Professor Roberts is alluding comparative advantage and opportunity cost

  23. Penelopeon 28 Sep 2011 at 12:01 am

    1. I don’t think self-sufficiency is necessarily the road to poverty; however countries will gain less from the benefits of trade and be limited in growth if they are self-sufficient. The benefits of trade outweigh the costs of trade. For example a low opportunity cost of producing goods, more revenue from specialized exports and cheaper goods and services.

    2. The mercantilist philosophy says that exports are good because it creates more jobs for workers, which means more employment and they get more revenue flowing into the economy from other nations. Imports are bad because it creates more competition in the economy and nations aim for their imports to be less than their exports.

    3. Roberts is alluding to the comparative advantage, which is when a country can produce a good at a lower opportunity cost than another country and is based on a country’s factor endowments.

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