The United States has an absolute advantage in producing sugar over all of the other sugar producing countries. Does this fact mean that we should not import any sugar from the other countries? The US has absolute adantage in production of sugar as compared to all other sugar producing countries. THe absolute advantage means that given resources a country who has absolute advantage can produce more at lesses cost as compared to other countries, THe US is one such country who has absolute advantage in production of sugar. Does it mean that the US should only export and avoid import of sugar from other sugar producing countries. Ricardo's theory of comparative cost postulates that on the basis of comparative cost advantage one should involve in trade; i.e.one should export a commodity in which a country has comparative advantage, and she should import that commodity in which the country does not have comparative advantage. Ricardo showed that in case of two countries A and B , A has absolute advantage in production of two goods say x and y. One could assume that A should export both commodities x and y. But Ricardo taking the comparative advantage showed that the country A should export in case of that commodity in which sha has comparative advantage. On the contrary the country B which has no absolute advantage in production of x and y should specialise in one in which she has a comparative advantage. Naturally, it is wrong to say that the US should not import sugar, There are factor endowments that may vary from country to country. She has to look into comparatve cost of per unit production. If she has a comparative advantage, she should export. |
