【PTE干货】PTE 高频summarize spoken test精析 （三：Absolute advantage）
Updated: Sep 5, 2019
Comparative advantage is the theory of trade. It explains why people trade and which goods people should trade if they want to maximize their well-being. It is actually useful to understand comparative advantage to begin with a false theory. A very plausible, but incorrect theory of trade, namely the theory of absolute advantage. So let’s consider a simple model. Let’s suppose that labor is the only goods that used in production, and we can produce computers or shirts. Now let’s suppose that in Mexico, it takes 12 units of labor to produce 1 computer, and again in Mexico, it takes 2 units of labor to produce 1 shirt. Now let’s compare it with the United States, to make it simple, we’ll suppose that in United States, it only takes 1 units of labor to make 1 computer, and 1 unit of labor to create 1 shirt. Now, from the absolute advantage theory of trade, it should, it may seem obvious that there should be no trade here, it may seem obvious that the united states will outcompete Mexico on all margins. After all, the United States in this example, is much more productive at producing computers, and also more productive at producing shirts than Mexico. So this is the case that we might think that the United States is so much better at producing both computers and shirts, that certainly there is no reason for the United States to trade with Mexico, its less productive neighbor.
Comparative advantage 相对优势
Maximize one’s well-being 利益／幸福度最大化
False theory 错误的理论
Simple model 简单的模版
Let’s suppose 假设一下
Make it simple 简单一些说
Absolute advantage 绝对优势
This recording is about the theory of absolute advantage and its example evolving the United States and Mexico.
The speaker mentioned that although comparative advantage guides people of trading, absolute advantage theory is a false yet plausible theory of trade. Here is a simple model:
+ example of the United States and Mexico trading computers and shirts.
In conclusion, the example of absolute advantage could act as the initial theory we use to understand comparative advantage in trading.
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