2-2 Simulation Discussion: Comparative Advantage

During this week’s simulation, the goal was to see the difference in production without trade and with
trade. Without trading, I was able to product 80 combos in 30 minutes. The breakdown was 80 burgers
in 20 minutes and 80 fries in 10 minutes. With trading, I didn’t do so well. I produced 32 combos after
trading 224 fries. Based on this simulation, I was able to produce more without trading.

There are several ways the United States could benefit from specialization and trade. The principle of
comparative advantage statues that each good should be produced by the country that has the lower
opportunity cost of producing that good (Mankiw, 2021). United States has more fertile land and is
better at producing food. Specialized trade of this resource would greatly benefit the U.S. For example,
Japan and United States both produce cars equally well, but a U.S. worker can product twice the amount
of food per month than the Japanese worker. Based on this example, U.S. has a lower opportunity cost
and comparative advantage in producing food where Japan has a comparative advantage in producing
cars (Mankiw, 2021). Through specialization and trade, both countries can enjoy more food and more
cars.

The article I found speaks to the world’s largest trade deal that will come into force in January, 2022. The
Regional Comprehensive Economic Partnership (RCEP) was signed by 15 Asia-Pacific countries last year
(Lee, 2021). RCEP covers 2.2 billion people and $26.2 trillion of global output. The partnership will

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 create a trade grouping that covers about 30% of the world’s population, as well as the global economy
(Lee, 2021). RCEP provides an added benefit to the countries that already have free trade agreements.
RCEP creates a common set of rules of origin which facilitates easier movement of goods. An agreement
this large increases the number of free trade agreements amongst many countries.

Resources

Lee, Y. (2021, November 3). World’s largest trade deal will come into force in January. The U.S. won’t be
part of it. CNBC. Retrieved on November 7, 2021. https://www.cnbc.com/2021/11/03/worlds-
largest-trade-deal-rcep-to-come-into-force-in-january-2022.html

Mankiw, N.G. (2021). Principles of Economics (Ninth Edition). Cengage Learning.

Responses –

Hi Alexandria,

The statement “why would you build a house if it costs less to buy it” is interesting to me. This is a topic
discussed in my household regularly. Buying items verses making the item yourself can be cost effective
in some situations. I believe that is what Adam Smith was trying to convey in this statement. Big box
retailers can sell items for less due to quantity that is sold whereas an individual vendor must recoup
their cost and need to charge more. When building your own house, I would lean towards the cost being
higher that if you purchased a home already built. The plus side to making or building it yourself is the
benefit you gain by having the ability to customize whatever it is you are making or building. With
positives, always comes negatives. Free trade agreements don’t always benefit the country (Berman,
2018). Some of the cons to free trade is massive job losses due to obtaining cheaper goods overseas
than to make domestically, predatory pricing which will out price the competition, and increased
vulnerability for the country due to the demise of critical industries (Berman, 2021).

Thank you,
Lori Young

Reference
Berman, C. (2018, October 25). The Disadvantage of Free Trade. Bizfluent. Retrieved on November 7,
2021. https://bizfluent.com/about-5467816-disadvantages-trade.html

Hi Amanda,

I found your article regarding the deal President Trump reached with Canada and Mexico interesting.
Although it seems as a promising market for exports and as a lower-cost investment location that could
enhance the competitiveness of U.S. and Canadian companies, I can’t help to think of what the negatives

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 could be to this free trade agreement. Based on an article from bizfluent, there are many disadvantages
to free trade agreements. Free trade may benefit individual businesses and industries that have the
strength to compete without protective tariffs, and it might allow consumers to buy more goods at
lower prices. But for some individuals, free trade can mean lost jobs, and for some countries, it can
cause critical industries to vanish (Berman, 2021). Free trade can also hinder tax collection from
domestic corporations. Allowing free trade outside of its borders can lead industries to migrate
elsewhere. In addition, free trade can leave countries vulnerable. A country with a free trade
agreement with a neighboring country may fight against an expansion of that agreement to other
nations if doing so will hurt its own position (Berman, 2021).

Thank you,

Lori Young

Reference
Berman, C. (2018, October 25). The Disadvantage of Free Trade. Bizfluent. Retrieved on November 7,
2021. https://bizfluent.com/about-5467816-disadvantages-trade.html

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