Below is a screenshot of a test on Comparative Advantage from the University of Michigan from 2019. I have also included the link to the full test – and don’t worry, the answers are included! Why am I posting about comparative advantage – because it is such an exciting topic!
Nah
I got to thinking about it the other day as I listened to the administration talk about the tariffs and how/why they chose the amount of tariff to place on countries. I went back to my three little Econ classes I took in my past – one at the University of Georgia (Go Dawgs) and two at Columbus State University (Go Cougars!) These were not in-depth classes. Just enough to give me a working knowledge of the subject. I really enjoyed the classes believe it or not – perhaps my favorite classes after my history classes.
One thing I remembered about the Econ class after listening to the news was the topic of comparative advantage. What is comparative advantage? It is “the ability of a party (an individual, firm, or country) to produce a good or service at a lower opportunity cost than another.” Why did I think about this? Because it appears that the very smart folks in this administration have forgotten this principle. When our President starts talking about any deficit in trading is a loss and we aren’t going to have a loss, one has to wonder (this one wonders) if he took any Econ classes while at Wharton.
Let’s use coffee and myself as a simple illustration. I “could” grow coffee in my backyard. It would be at great cost to me to do so but with a ton of effort and resource I could get a few beans. I’m sure they would be crap but I would be producing them here in the good ol’ USA.
Or…
I could reach out to people I know in Ethiopia. I know one that actually exports coffee beans. (We almost went into business together but I chickened out. We even went to Coffee shows – they are real – and looked at some big roasters, learned how to source k-cups and other interesting things. It was cool). He would source the coffee and I would import it to my house. This would allow me to put my time and efforts into something I could actually succeed at with much less time, effort and cost. My friend in Ethiopia would have the comparative advantage on producing coffee beans. This makes it better for me to import his beans rather than grow my own. Of course this also means that I would run a trade deficit against him as I would be importing coffee without exporting anything to him.
According to our President this would be a loss. And, I assume, he would call me a loser for doing so.
I know my example is too simple but it is what I was thinking about and have been thinking about since this tariff stuff has been in the news so, I thought I would share. It feels good to get it out of my brain. And…I’m trying not to think about my 401k.
If you want to take the test…and view a couple of the questions…
MattMunnell.com 