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    Lily@Melbourne, Australia


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Thinking as an economist

It all started with a sentence: thinking as an economist.
Assuming country A, B can produce computer and clothes. Resource means everything contributes to making the productions. Such as, labour, capital, equipment, etc. According to the classical economic theory, country B still can gain from trade even has no absolute advantage compared with A’s as long as the opportunity cost is lower. However, the cost is result from the inefficiency of country B. In other words, country B actually needs more resources to produce clothes. At a brief of glimpse, each can benefit from trade. Yet, in the long run, country B will become a loser. First, demanding on computer not change, sometimes even rise by expectation or advertisement or taste. Following “supply and demand decide on the equilibrium price”, the demand is so inelastic that country A can get a wonderful profit than the real value of computers. Obviously, for exchanging the goods, country B has to increase the supply of clothes. If the demand keeps still (it can easily get this supposition because country A has absolute advantage in clothing.), there is a surplus in clothes market, equilibrium price will plunge into zero profit. Worst of all, in the reality, resources are not equally productive in all activities. If more clothes are produced, the forgone computer is worth more than the additional clothes. Country B depends on country A little by little from computer to clothes.
Just from a purely economic view, it is very strange to allocate all resources to make clothes, no to mention, other intangible indication, social, environmental…


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