When you are assigned a comparative advantage question in economics class, it is very easy to find the answer. You look at the opportunity costs for each product and each country. You see which country has a lower opportunity cost for making a given product. That is the product for...
When you are assigned a comparative advantage question in economics class, it is very easy to find the answer. You look at the opportunity costs for each product and each country. You see which country has a lower opportunity cost for making a given product. That is the product for which it has a comparative advantage. This is very easy because you are typically given all the information you need to determine each country’s opportunity cost for producing each good (most such questions only involve two countries and two goods). In the real world, it is much harder to discern comparative advantage.
In the real world, it is essentially impossible to determine the opportunity cost of making a given product. We do not know, for example, how many dollars’ worth of airplanes we would have to give up to make $1 billion worth of television sets. There is really no way to determine this. Therefore, we cannot really accurately tell for certain where a country’s comparative advantage lies.
If we are going to try to determine the US’s comparative advantage, we can go about it in two ways. First, we can look at what the US actually exports. In theory, our major exports should be the things in which we have a comparative advantage. If we use this method, our biggest comparative advantage is in, of all things, oil. This is our largest export by value. Our second largest export is pharmaceuticals. For a complete list of our top 15 most important exports, follow the link below. We must have a comparative advantage in these products (the theory goes) because if we did not, other countries would not buy them from us.
The second way to look for comparative advantage is through thinking about what the US ought to be best at. You can see this approach used in this article. By this thinking, we know that we should not have a comparative advantage in anything that uses a lot of relatively unskilled labor because we do not have a lot of people who will work for low wages. Instead, what we have is a highly educated population. We also have a lot of money that we can spend on capital goods. Therefore, we should have a comparative advantage in things that are produced using a lot of educated people. In addition, we should have a comparative advantage in things that are produced using a great deal of technology.
While we cannot determine the US’s comparative advantages as easily as we could in an economics homework problem, we can make educated statements about where our comparative advantages probably lie.