Question

Read 9, 10, and the article by Neil Irwin linked to this forum from The New York Times. http://www.nytimes.com/2014/05/01/upshot/big-growth-in-global-trade-is-in-ideas-not-stuff.html?_r=1 Then compare and contrast your findings from this article to Chapters 9 and 10 of your textbook.

name of the textbook “Microeconomics”, David Colander, ECO 2023

Answer 1

The NYtimes article talks primarily about change in pattern of trade moving from less knowledge intensive goods to high knowledge intensive goods. For example countiies going in for more goods such as computer technologies, space technologies and instruments, airplanes, pharmaceuticals etc. as compared to simple goods such as clothes, plastics, steel etc. This can be explained from the textbook which mentions that the gains from trade of goods such as knowledge intensive goods is higher as a majority of countries can now easily produce simple goods whereas it knowledge intensive goods are not easily available to all countries. So, countries with technical know-how can shift production from simple to knowledge intensive goods and gain more on trade with other countries.

It is also important to consider the comparitive advantage that nations have over each other with respect to factors of production. Comparitive advantage means that the benefits of lesser cost of production of a particular commodity that a country enjoys when compared to the production cost of producing the same commodity in another country. The United States has technological superiority over most of the countries in the world and can trade knowledge intensive products with other countries for simple goods like agricultural products, textiles etc.

Countries also take into account the real opportunity cost of producing a product over another with respect to production capabilities of another country for the same product. This allows a country to produce at level where the benefits accrued from the factors of production are maximised.

The increased connectivity to other countries due to globalisation has resulted in faster growth of economies of the countries of the world. This means more jobs and better livelihoods for the population of different countries engaging in global trade.