Question

How would each of the following theories of comparative advantage explain the fact that the United States exports computers? a. Productivity differences b. Factor abundance c. Human skills d. Product life cycle c. Preferences

Short answer

Answer: The United States is a leading exporter of computers due to its advantages in productivity differences, factor abundance, human skills, product life cycle, and favorable preferences. Higher productivity levels and an abundance of capital and skilled labor allow the U.S. to produce computers at a lower cost. Additionally, the strong educational system and focus on innovation contribute to a highly skilled workforce. Moreover, being an early innovator in the computer industry and having a strong reputation for quality and reliability further bolster the U.S. comparative advantage in computer exports.

Step-by-step solution

a. Productivity differences

Productivity differences refer to the variations in the production output from various countries. The United States has an advantage in computer production due to its higher productivity levels, innovative technology, and well-developed infrastructure. With higher productivity, the U.S. can produce more computers at a lower cost per unit, making them more competitive in the global market and leading to more exports.

b. Factor abundance

Factor abundance states that countries tend to export goods that use their abundant and cheaper factors of production more intensively. The United States has an abundance of capital and skilled labor, which are crucial factors in computer production. This factor abundance allows the U.S. to produce computers at a lower cost relative to other countries, enabling them to export more computers globally.

c. Human skills

Human skills are the knowledge, abilities, and expertise that people possess and bring to the production process. The United States is known for its strong and diverse educational system and its focus on research and innovation in various fields, including computer science and technology. This contributes to a highly skilled and knowledgeable workforce, providing the U.S. with an advantage in producing high-quality computer technology, leading to higher exports.

d. Product life cycle

The product life cycle theory suggests that a country's comparative advantage in producing and exporting a good can change over time as the product goes through different stages of its life cycle. The U.S. has been a pioneer in the computer industry, thus positioning itself early in the product life cycle as a key innovator, producer, and exporter. As technology and production methods evolve, the U.S. maintains its advantage by staying at the forefront of innovation and adapting to the changing global market.

e. Preferences

Preferences play a role in comparative advantage by influencing a country's choice of goods to specialize in and export. Consumers worldwide tend to associate American computer brands with quality, innovation, and reliability, leading to increased demand and higher exports. The reputation and prestige of the American computer industry strengthens the U.S.'s comparative advantage and contributes to its success as an exporter of computers.