Question

Consider this statement: “The principles of specialization and trade according to comparative advantage among nations also apply to states in the United States”. Do you agree or disagree? Explain.

Answer 1

I agree that the principles of specialization and trade according to comparative advantage among nations also apply to states in the United States. In fact, principles of specialization and trade according to comparative advantage applies to much smaller economic entities such as firms and even for individuals. These principles apply to two economic entities of any size who are involved in the trade.

Principles of specialization and trade according to comparative advantage is that a country should specialize in the production of the goods in which it has a lower opportunity cost. This would reduce the cost of production and increase the availability of goods for all. When the states within the United States get involved in a trade of goods with one another, each state should produce according to its comparative advantage and trade with others. This would help in attaining higher economic efficiency, lower costs and more goods and services for all.