Name: _____________________

Assignment 10-Are Comparative Advantages Real?

PART 1
Many countries produce thousands of kinds of goods and many produce the same kinds
of goods. The automobile industry is just one major example. Are industry leaders
calculating comparative advantages when selecting the kinds of goods to produce? Are
the formulas practical?

There are at least two ways to view the data. The first is to look at current output and
assume that comparative advantages should be reflected in countries abilities to
produce efficiently at competitive prices. Some of this may also be due to absolute
advantages in
some products, but if markets work logically, then countries that now produce large
amounts should be doing so because of comparative advantages. Here is data of world
production, showing the top five producers in these markets. Can you guess the top
two of each?
Current World Production
(The top five are listed in alphabetical order):

Top 5 World #1 World #2

Oil & Gas China, Iran, Russia, Saudi Arabia, USA
Wheat China, France, India, Russia, USA
Corn Canada, China, India, Pakistan, USA
Rice Bangladesh, China, India, Indonesia, Vietnam
Coal Australia, China, India, South Africa, USA
Cotton Brazil, China, India, Pakistan, USA
Steel China, India, Japan, Russia, USA
Diamonds Australia, Botswana, Congo, Russia, Saudi
Arabia
Beef Argentina, Australia, Brazil, China, USA
Energy Canada, China, Russia, Saudi Arabia, USA
Cars China, Germany, Japan, South Korea, USA
Airplanes Brazil, China, Russia, UK/France, USA
 PART 2
The second method is to look only at exports not overall production. Economists have
created an index that compares the exports of a country with other products exported
by that country and all other countries that export that particular product. It is known
as the Balassa Index. This index gives a general sense of comparative advantages. Here
are 15 countries and the products for which they have the highest Balassa Index. Can
you match them?
Australia
Bangladesh
Brazil
Canada
China
France
Germany
Hong Kong
India
Japan
Mexico
Russia
Saudi Arabia
United Kingdom
USA

 Aircraft, Arms
 Edible Vegetables
 Fertilizers
 Furskins, Artificial Furs
 Mineral Fuels
 Nickel Ore
 Ores
 Perfumes, Cosmetics
 Plaiting Materials
 Photographic Goods
 Silk
 Sugar
 Vegetable Textile Fibers
 Vehicles
 Works of Art