Misconceptions About Comparative Advantage

1. Misconceptions About Comparative Advantage • Productivity and Competitiveness • The Pauper Labor Argument • Exploitation

2. According to a well-known historian’s opinion, he hold a belief that gains from trade depend on absolute advantage not competitive one in productivity. But our group don’t think so. It is not necessary and essential for a country whose absolute productivity advantage higher than others to produce a good. So, obviously, it depends on competitive productivity advantage. Eg: There is much cheaper labor in China, so in terms of other developed countries who lack labor, China has competitive advantage in production. Productivity and Competitiveness

3. The pauper labor argument • The pauper labor argument means that foreign competition is unfair and hurts other countries when it is based on low wages. Home is more productive than Foreign in both industries. It seems that Home is much safer , but what for Foreign it is fatal. But our group don’t think so. Nowadays, the third industry is main in most developed country. So they need less labor and cheap labor has little effect on their economy. • Eg: America masters the key technology in the world. Those industries what need a lot of cheap labor are transformed to some developing countries such as India and China

4. Exploitation • Trade exploits a country and makes it worse off if its workers receive much lower wages than workers in other nations .Whether low-wage workers and their country are worse off exporting goods based on low wages than they would be if they refuse to enter such demeaning trade? • Eg: As we all know, a lot of Apple’s products such as Iphone, Ipad are produced by China’s companies. But our workers get very little profit compared with Apple. Those workers live on low wages