7.The Reason of Trading: Comparative Advantage

       Just imagine that a family decided to go to the beach to enjoy their weekend. Father stopped at the gas station to put gas in the car and mother and son bought the mango, banana and volleyball. Most of these products are made in a foreign country other than the U.S. Why we buy so many different products from outside of the country even though we think we already have enough technology to produce these products? Because there is a economic and mathematical secrets called ‘ComparativeAdvantage.’

                            
     For example of South Korea, there aren’t enough natural resources to produce crude oil or gas. Also, no one can produce a lot of fruit such as mango or banana because of the weather condition in Korea. However, you can easily put the gas in your car and find mango and banana from grocery markets because of trading among with other countries.

                

       Trading refers to the buying and selling of goods between the country and the country. Selling products and resources to other countries is called export and buying goods from outside of the country is called import. After importing resources from foreign countries, companies can produce various products with developed technology. After that, they export goods to foreign back and can earn a lot of foreign currency. South Korea had faster economic growth because of this powerful trading business.
 
           

       However, if one country has enough resources and technologies to produce own goods, do they still need to do trading business? For example of the U.S., the U.S. has resources to generate natural energies and can produce a lot of fruits, but trading is still huge part of their economy. The reason why the U.S. still doing trading business is the concept of ‘Comparative Advantage.’ The comparative advantage is the ability that can produce certain goods with less opportunity cost compared to others.
                         

      The comparative advantage is one of important and basic concept of economy. British economist David Ricardo (1772-1823) brought this concept to explain the reason why there’s still trading among countries if one country has all resources and technologies.

           

      Simply explain this concept, if the U.S. can generate more profit from cars and natural resources than producing bananas, producing banana in the U.S. will be wasting time and money. So they import bananas from other countries who has relatively less opportunity cost than the U.S. In this way, the U.S. can focus more on exporting to generate more profit and the other countries can also exporting their goods to the U.S. This will generate the global trading market and give win-win situation to both countries.