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Comment by SapphireSun | Hacker News Reader

This essay inspired me to read about comparative advantage. I pulled up this wikipedia article: https://en.wikipedia.org/wiki/Comparative_advantage

I have to say that I'm still a bit confused by it. In the example given, Portugal has an absolute advantage in cloth and wine. Let's say England's productivity was massively less than Portugal (say it took a 1M hours to produce cloth and 1.3M to produce wine), but Portugal takes 90 and 80 respectively. Wouldn't the world be flush with Portugal's product in both industries rather than only in wine?

EDIT: This link was useful though I think I'm still unsure about the case I proposed. http://economics.fundamentalfinance.com/micro_comparative.ph...

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> Wouldn't the world be flush with Portugal's product in both industries rather than only in wine?

It depends on the difference in value for both industries, compared to the difference in productivity for both countries. That's why it's called comparative advantage. If a product is massively more valuable than the other one, then it could make sense to specialize on it, even if the other country is much less productive. The classic example is, a professor can type faster than their secretary, but it still makes sense for them to specialize on their field and let the secretary do the typing.

The suggestion is that the more productive country would convert all of its production to one commodity, leaving an opportunity for other commodities to other countries. This is a bit simplistic, as it assumes that production can be converted, that there no region of the country where a different industry is more productive, that producers have the relevant information, etc.

Wikipedia had an interesting segment on the general case where there are more than two industries:

"In both Ricardian and H–O models, the comparative advantage concept is formulated for 2 country, 2 commodity case. It can easily be extended to the 2 country, many commodity case or many country, 2 commodity case.[17][18] But in the case with many countries (more than 3 countries) and many commodities (more than 3 commodities), the notion of comparative advantage requires a substantially more complex formulation.[19]"

> Wouldn't the world be flush with Portugal's product in both industries rather than only in wine?

In short, yes. But that's merely an extreme case, not an counterexample to the principle.

Starting with the no-trade situation, Portugal producing 1M units of cloth and 1M units of wine, England producing only 10 units each. Note that "the world" is already flush with Portuguese products.

If they start trading and want to keep the same total production of cloth, then England would produce only cloth (20 and odd units), and Portugal would produce a little less cloth (1M - England's production) and bit more wine.

I see I think there's a deeper subtlety I'm not quite grasping. When you provide a fixed production level for a given resource, it makes a lot more sense, but what forces there to be a fixed level of cloth but a floating level for wine?

At first I was thinking that there will be a certain demand level for a good, and the supply will shift to meet it fixing a price for the good. However, who's to say that just because there's more (potential) supply more wine will necessarily be produced? Couldn't those remaining people just be unemployed?

I realise I don't understand it as well as I thought I did.

How about variable outputs of any commodity and countries taking any opportunity they can to increase consumption by replacing domestic production of a commodity with foreign production bought with the proceeds of extra production of another commodity for export.

No country would benefit from producing so much that it put all foreign industry out of business; nobody exports anything except in exchange for something (imports).

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