1. Questions

economics

A country may have the absolute advantage in the manufacture of a certain product, but still import that product from abroad. Does this make sense? Explain.


Yes, it makes. A country (or persons for that matter) will produce goods where they have a comparative advantage, rather than an absolute advantage.

It is easier to explain, with examples, on a person level rather than a country level. But the same principal applies.

Compare a medical doctor who can also type 100 words per minute, with a high school graduate who can type 60 words per minute, but with no other marketable skills. The medical doctor has an absolute advantage in typing. However the market value of his/her medical skills far exceeds the value of his/her typing skills. That is, he/she has a comparative advantage in doctoring. So the doctor does the doctoring and the HS graduate does the typing.



Absolute advantage means that one country is better at producing a certain product than another country, using the same number of resources.

However, it might still be importing that product from abroad because of a number of reasons. We will use USA as an example. Lets say that USA has an absolute advantage in producing cars, but it might still be importing cars from abroad because

1) To give consumers more choice - e.g. it might import Chinese cars to give consumers more variety

2) Although USA might have an absolute advantage, it might have run out of the natural resources needed to produce cars, so it will need to import cars. It could import the raw materials, but that MIGHT be more expensive than importing the car.

3) USA might have a very high population, so, although it might have an absolute advantage in car production, it still might not be able to produce enough cars to meet the demand for cars, so it might need to import them

4) Other countries might not have an absolute advantage (in other terms, they produce less than USA using the same number of resources) but they might be able to produce that product more cheaply (e.g. because of cheap labour)

This is quite a tricky question, but very interesting. I hope this has helped.