Question

Explain: “The United States can make certain toys with greater productive efficiency than can China. Yet we import those toys from China.” Relate your answer to the ideas of Adam Smith and David Ricardo.

Short answer

The United States has an absolute advantage but does not have a comparative advantage in producing toys than China; thus, it imports toys from China.

Step-by-step solution

Step 1. Absolute advantage and comparative advantage

Adam Smith states an absolute advantage. If a nation can produce more output than the competitor nation with the same input, the nation can produce efficiently.

Comparative advantage is postulated by David Ricardo, which states that, if a nation can produce with lower opportunity cost than the competitor nation if the product is produced with fewer resources forgone than the alternative production.

Step 2. Explanation

The United States has productive efficiency, i.e., an absolute advantage over China in producing toys but still imports from China; thus, China has a comparative advantage over the United States.

The specialization in the production of toys is possible when a nation has a comparative cost advantage; i.e., the production of toys requires less sacrifice of other goods.

Hence, the United States imports toys from China.