Buying local vs. Trade as aid

[DaVulf]

Comparative advantage is critical to understanding modern international trade theory.

Under absolute advantage, one country can produce more output per unit of productive input than another. With comparative advantage, if one country has an absolute (dis)advantage in every type of output, the other might benefit from specializing in and exporting those products, if any exist.

Source: http://en.wikipedia.org/wiki/Comparative_advantage

Basically, although machinery is fairly cheap, the extremely low cost of labour over there makes it cheaper for them to produce. Were we to focus resources on producing those products that they make, then we might be able to do it cheaper. This would imply that maybe we have an absolute advantage in both products. Either way, if they can produce one and not the other, we should let them produce what they can, and focus more on the one they cannot. You then trade for the difference.

If we tried to produce absolutely everything we consume... oh wait.. we can't.

[TallGuyLittleCar]

Source: http://en.wikipedia.org/wiki/Comparative_advantage

yes thank you I read about it before your daddy was using molsens to get the comparative advantage on yo momma.

Basically, although machinery is fairly cheap, the extremely low cost of labour over there makes it cheaper for them to produce. Were we to focus resources on producing those products that they make, then we might be able to do it cheaper. This would imply that maybe we have an absolute advantage in both products. Either way, if they can produce one and not the other, we should let them produce what they can, and focus more on the one they cannot. You then trade for the difference.

The key is that you average all the products you are trading for a net gain. You make take a hit on one product but you make up for it in the gain of another.

If we tried to produce absolutely everything we consume... oh wait.. we can't.

well that is really another matter.