Economics Assignment: Interdependence, Gains from Trade, and Examples

This economics assignment examines the concept of international trade and its benefits, focusing on interdependence and specialization between countries. The assignment uses the examples of the USA and China to illustrate how each country can benefit from trade by focusing on producing goods where they have an absolute advantage. China, with its lower labor costs, is shown to have an advantage in producing labor-intensive goods like T-shirts, while the USA, with its skilled workforce and capital, excels in producing capital-intensive goods like aircraft. The assignment explains absolute advantage and the gains from trade, emphasizing how both countries can benefit from exchanging goods they specialize in producing. The student provides references to support the analysis of the economic concepts.

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 Aircrafts
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

ECONOMICS
produces a lot more aircrafts than china (Lee, Finnoff & Daszak, 2018). The absolute
advantage is a situation where an individual or a country will be either producing more goods
or services than the other producer. The gains from trade are the net benefits to economic
agents from being allowed an increase in voluntary trading with each other. I think china will
be prodding more t shirts since it is a labour abundant country. USA will be leading in the
capital intensive goods or technological goods like aircrafts. Therefore, each of them can
produce whatever they are best at and both can come out from the other’s work without
working too much.

ECONOMICS
Reference list
Brustle, J., Cai, Y., Wu, F., & Zhao, M. (2017, June). Approximating gains from trade in
two-sided markets via simple mechanisms. In Proceedings of the 2017 ACM
Conference on Economics and Computation (pp. 589-590). ACM.
Fajgelbaum, P. D., & Khandelwal, A. K. (2016). Measuring the unequal gains from trade.
The Quarterly Journal of Economics, 131(3), 1113-1180.
Feenstra, R. C. (2018). Restoring the product variety and pro-competitive gains from trade
with heterogeneous firms and bounded productivity. Journal of International
Economics, 110, 16-27.
Lee, K. D., Finnoff, D., & Daszak, P. (2018). Impacts of Pathogen Introduction Risk on
Importer Behavior and Gains from Trade in the Livestock Industry. EcoHealth, 1-10.
Lyon, T. P. (2018). Non-Market Strategy and Social Movements Research: What Are the
Gains from Trade?. In Social Movements, Stakeholders and Non-Market Strategy (pp.
349-367). Emerald Publishing Limited.
Ravikumar, B., Santacreu, A. M., & Sposi, M. (2019). Capital accumulation and dynamic
gains from trade. Journal of International Economics.