Interdependence and Gains from Trade

Running head: ECONOMICS
Economics
Name of the student
Name of the university
Author note

ECONOMICS
Interdependence and Gains from Trade
International trade is the absolute must for all the countries in the world. I think the
thing which have surprised me the most is that people can work together and each can
produce whatever they are good at producing. Each of them can produce whatever they are
best at and both can come out from the other’s work without working too much. For an
example let us take the case for USA and China. We know that china is able to produce high
volume of low cost items like iPods, toys and T shirts (Ravikumar, Santacreu & Sposi,
2019). The US is able to produce high cost items like airplanes, heavy farm equipment and
missiles. China can produce more of the low cost products since it has lower labour cost
along with high volumes of unskilled workers and low volumes of skilled workers. On the
other hand, the United States will be able to produce more high cost products since it
comprises of more skilled workers along with better salaries (Fajgelbaum, & Khandelwal,
2016). Therefore, I think each of the countries should be producing high amount of outputs
for their specific speciality. With the help of trade, both US and China will be benefitting
from each other.
Therefore, I think china should be selling labour intensive goods since it as huge
population and on the other hand, the United States of America should be exporting capital
intensive goods as it is capital abundant country.
T
shirts
Aircraf
ts
China 500 50
U.S.A 300 600
From the above example we can say that at a given time china has an absolute advantage in
the production of t shirts since, it produces large number of t shirts than USA. On other hand,
the United States of America has an absolute advantage in the production of aircrafts since it