Call Us: US - +1 845 478 5244 | UK - +44 20 7193 7850 | AUS - +61 2 8005 4826

General equilibrium and economic efficiency

 natural point at which to introduce international economic ideas is when the text or syllabus reaches the topic of opportunity cost, which establishes the basis of comparative advantage and exchange. Adding a few relatively simple examples can easily make the point; the same framework for demonstrating comparative advantage by considering the productivity of, say, Bill and Beth, or Farm A and Farm B, can be used for Belgium and France.

The idea of comparative advantage can be easily elaborated by pointing out that the sources of comparative advantage, domestic and international, are natural and/or acquired. For instance: The U.S. has cheap food relative to much of the world in part due to the natural relative abundance of arable land, just as some jockeys have a comparative advantage in horse racing due to their size. These are natural advantages that exist because of the initial endowment of resources. On the other hand, New York has a comparative advantage in financial services, not primarily due to initial endowments (there is nothing natural about the geography of New York that confers a comparative advantage in financial services), but due to productivity acquired through time due to historical circumstances.