Posted by Tiffany on .
Peter Pundit, an economics reporter, states that the European
Union (EU) is increasing its productivity very rapidly in all
industries. He claims that this productivity advance is so
rapid that output from the EU in these industries will soon
exceed that of the United States and, as a result, the United
States will no longer benefit from trade with the EU.
a. Do you think Peter Pundit is correct or not? If not, what
do you think is the source of his mistake?
b. If the EU and the United States continue to trade, what
do you think will characterize the goods that the EU
exports to the United States and the goods that the
United States exports to the EU?
Peter Pundit is full of S.
a) First, what is causing the super-increase in productivity, and why is that reason unique to the EU? Unless there is a learning divide, information leading to productivity increases is very difficult to keep secret. Second, even if the EU is becoming super productive, and the U.S. is not, the benefits from trade come from comparative advantages (not absolute advantages). The U.S. will always have a comparative advantage in something.
b) Countries will export those goods/services they have a comparative advantage in producing.