Explaining comparative advantage
In an extract from his new book 50 Economic Ideas, Edmund Conway considers the importance of comparative advantage built on the work of David Ricardo.
“Ricardo’s theory of comparative advantage is typically used as the backbone of arguments in favour of free trade – in other words abolishing tariffs and quotas on goods imported from foreign countries. It is claimed that, by trading freely with other countries – even those that, on paper, are more efficient at producing goods and services – one can become more prosperous than by closing one’s borders”
From supplier to buyer - China’s impact
Jack Ma (chairman of Alibaba Group) writing in the Financial Times reminds us of an important shift in trade flows between China and the rich advanced nations. Although growth in the Chinese economy is slowing down her export growth will continue to remain strong because of fundamental comparative advantages - but supporters of protectionism often fail to look at the other side of the ledger - the very fast growth of import demand into the Chinese economy - China is becoming a powerful global buyer and not just of mineral supplies from other developing nations.
“While there is a lot of competition from cheaper alternative markets, such as India, Bangladesh and Vietnam, nothing can beat China’s vast choice of products and suppliers. Over the years, Chinese suppliers have redefined themselves beyond pricing and sharpened their advantage in terms of quick turnround, good infrastructure, speed to market and compliance with international standards.....China’s role as top supplier, and now a leading buyer, is causing a new economic phenomenon that should be embraced rather than feared.”
High oil prices threaten Asian trade model
Ambrose Evans-Pritchard is on good form in the Telegraph today looking at how the spike in oil prices is theatening the very basis of the Asian trade model. In a world where distance now costs money - ever-rising freight charges are acting like an import tariff for countries whose export-led growth has been built on mass volume manufacturing and the ability to transport these products in huge bulk around the world’s shipping lanes at a relatively low cost.
“The manufacturing revolution of China and her satellites has been built on cheap transport over the past decade. At a stroke, the trade model looks obsolete. Asia’s intra-trade model is a Ricardian network where goods are shipped in a criss-cross pattern to exploit comparative advantage. Profit margins are wafer-thin. Products are sent to China for final assembly, then shipped again to Western markets. The snag is obvious. The cost of a 40ft container from Shanghai to Rotterdam has risen threefold since the price of oil exploded............globalisation has passed its high-water mark. The pendulum will now swing back from China to America. The mercantilists will have to reinvent themselves.”
The rest of the article is here
The Fairer Sex
It’s been a great week for economics with plenty of macro issues in the news. Half term has also given me lots of time to think about the microeconomics of everyday life, inspired in part by reading Tim Harford’s The Logic of Life.
On Friday I rushed, fashionably late, into Rhyme Time at my local library. My daughter and I quickly joined in a rousing chorus of ‘The wheels on the bus’ and after a few lines I realised that my voice stood out, and not just because I am appalingly tone deaf; its defining characteristic was that it was probably at least two octaves lower than anyone else’s in the room. Of the thirty plus parents there, I was the only dad!
Most Popular Topic Tags on the Economics Blog
recession, demand, economics, price, unemployment, prices, inflation, investment, costs, profit, downturn, supply, trade, debt, employment, confidence, euro, gdp, competition, capacity, risk, production, china, oil, incentives, exports, expectations, housing, pay, manufacturing, sterling, food, profits, property, mortgage, tutor2u, globalisation, banks, revision, slowdown, borrowing, usa, retailers, emissions, deflation, airlines, innovation, dollar, supermarkets, entrepreneur, efficiency, monopsony, elasticity, aqa, welfare, consumption, economist, productivity, saving, google, keynes, wealth, opec, depression, moodle, depreciation, jobs, competitiveness, credit crunch, economic cycle, cars, externalities, stocks, infrastructure, environmental, strategy, tim harford, carbon, vle, monopoly, subsidy, evaluation, eu, management, losses, protectionism, inequality, spare capacity, environment, poverty, bank of england, budget deficit, construction, behavioural, wages, macroeconomics, carbon trading, steel, commodities, output gap, skills, japan, oligopoly, imports, currencies, bbc, stagflation, contestable, agflation, cpi, farming, newsnight, choices, regulation, survey, taxes, government failure, itunes, minimum wage, lse, climate change, paul mason, population, intervention, keynes society, aviation, amazon, fiscal stimulus, single market, pricing, dan ariely, cartel, nationalisation, pollution, eton college, interest rates, shareholder, london, rationality, redundancies, market failure, rpi, mpc, shipping, behavioural economics, germany, robert peston, india, rsa, reputation, currency, quantitative easing, facebook, income elasticity, current account, stakeholders, brazil, coffee, savings, microsoft, monetary policy, crowding out, barriers to entry, collapse, multiplier effect, suppliers, economies of scale, price discrimination, uk economy, development, quiz, apple, surplus, taxation, labour market, tesco, free, scrappage, behaviour, tragedy of the commons, opportunity cost, open source, vat, smoking, cost of living, poverty trap, merger, growth, speculation, edinburgh, discrimination, ownership, cost benefit analysis, northern rock, global, ireland, supply chain, oecd, shareholders, scarcity, balance of payments, petrol, liquidity, duopoly, etonomics, iphone, trade deficit, starbucks, happiness, budget, human capital, subsidies, capital, immigration, eurozone, takeover, ecb, paradox of thrift, exploitation, advertising, wiki, public sector, utility, wants, labour force survey, peter day, tax, brand, blog, poland, iceland, foreign exchange, recovery, indirect tax, european union, robert frank, roger bootle, ocr economics, heathrow, hbos, hotels, freight, creative destruction, federal reserve, kaletsky, price war, information failure, spain, crude oil, transport, government borrowing, gini coefficient, sony, leverage, migrants, us economy, animal spirits, fishing, stephanie flanders, waste, information, milk, eu enlargement, anchoring, obama, aggregate demand, entrepreneurship society, needs, forecast, internet, discounting, real income, copper, deficit, contestability, nissan, evan davis, companies, fairness, geoff riley, blogging, standard of living, aqa economics, consumer welfare, martin wolf, renewable, labour mobility, collusion, imf, fair trade, pubs, income tax, obesity, res, disposable income, david smith, corus, national debt, devaluation, consumer surplus, vacancies, sub-prime, tariff, global economy, price capping, joint venture, twitter, accelerator effect, startups, guardian, yuan, youth unemployment, immobility, edmund conway, edexcel economics, redundancy, tata, walmart, relative poverty, sentiment, coal, tickets, vehicles, cash, diesel, base rate, russia, liquidity trap, contestable market, marginal cost, external shocks, movies, income elasticity of demand, libor, broadband, fixed costs, comparative advantage, accelerator, allocative efficiency, economic efficiency, pensions, training, king of shaves, satisficing, trend growth, undercover economist, hot money, congestion, price mechanism, deleveraging, positional goods, migration, jobless, social entrepreneur, apprenticeships, hyperinflation, age structure, cyclical, chris coleridge, monopoly power, financial times, ucas, pay cuts, reserve currency, ryanair, wheat, mervyn king, aldi, law of unintended consequences, carbon tax, gillette, deindustrialisation, yahoo, organic growth, barclays, price volatility, derived demand, liberalisation, house prices, richard thaler, royal mail, markets, diseconomies of scale, veblen goods, paul krugman, schumpeter, pension, demography, structural, logging, green revolution, tax burden, savings ratio, ocr, the economist, nhs, job losses, biofuel, drugs, gold, nelson thornes, scotland, cross elasticity, brics, redistribution, footfall, british airways, research, producer welfare, ebea, income distribution, social costs, ft, enterprise, general motors, natural monopoly, tariffs, o2, deforestation, economic welfare, bonds, asda, will king, automatic stabilisers, landfill, economax, energy, long tail, jim o'neill, disincentives, resources, profit margin, podcast, share prices, external shock, slump, philip allan, hedge fund, students, fiscal drag, hysteresis, ftse, elasticity of supply, buy to let, logic of life, contraction, equity, market structure, global business, oil prices, market power, health, ben bernanke, hedging, enlargement, retailing, supply-side, declan curry, nokia, price fixing, chris anderson, bric economies, diane coyle, dynamic efficiency, stimulus, hamish mcrae, toyota, john kay, fiscal policy, winners curse, zimbabwe, compound interest, contestable markets, frictional, rory cellan-jones, status races, claimant count, green shoots, repossession, eastern europe, healthcare, royal economic society, sustainability, public good, credit, superfreakonomics, vertical integration, inflationary pressure, invention, accession countries, probability, sustainable growth, gnp, fairtrade, freemium, g20, affordability, nairu,All tags
ECONOMICS TEACHER RESOURCE NEWSLETTER
Join over 4,000 other Economics Teachers in the UK and around the world who receive the tutor2u Economics Resource Email newsletter. Get special offers, first news of latest resources, teaching ideas, conferences and workshops.
Recent Threads on the Economics Teacher Discussion Forums:
Posts in: General Economics Teaching
Video Case-study - lunchtime prices slashed
Long Exam Example to Use for Revision Please?
Good hotel in London for school trip
Competitive Markets
Diminishing Returns
Complementary goods - HELP Please!
URgent Help Needed
Equilibrium concept
The price of life
Extended Project Qualification
