Question

A columnist for Forbes argues, "Even if China is always better than Spain at producing textiles, if the best thing that Spain could be doing is textiles, then that's what Spain should be doing".

a. What does the columnist mean by "China is always better than Spain" in the production of textiles (which include clothing, sheets, and similar products)? Was the columnist arguing that China has an absolute advantage over Spain in producing textiles, a comparative advantage, or both? Briefly explain with full sentences.

b. The columnist noted that, in fact, Spain exports significant quantities of textiles. If this description of the situation in China and Spain is accurate, briefly explain how Spanish firms are able to export textiles in competition with Chinese firms.

please explain thank you

Answer 1

1. The Columnist is talking about absolute advantage here.

It is stating that China has a absolute advantage in production of textiles than Spain (that is China can produce textiles in a greater number or quantity as compared to Spain).

2. Spain is able to export textiles because it has comparative advantage in production of textiles.

That is, Spain is able to produce textiles at a lower opportunity cost than China.

Since trade is based on comparative advantage, and a country gains by exporting goods in which it has comparative advantage, in the same way, since Spain has a lower opportunity cost of production of textiles or it has comparative advantage in production of textiles, it means it is mutually beneficial for the two countries to engage in trade in a way that Spain manufactures and exports textiles to China while China produces and exports those goods in which it has comparative advantage.