In reference to Robert (2009) the law of comparative advantage is what guides Countries to decide on what to trade with. Based on this law a country decides on what to import and not .the law provides a provision that Nations will import goods if it costs them less to import than to produce them. This is directly affected by the opportunity cost. For example if one nation can produce 100 cars and 50 phones and the second Nation can produce 50 cars and 150 phones then it mean that the first Nation to gain a comparative advantage will concentrate on production of cars at a lower opportunity cost than the second Nation .Therefore, the first nation will specialize in the production of cars. It will then trade by importing for phones with the second Nation that produces them cheaply. Therefore opportunity costs are equivalent. What the nation has sacrifice/ what it has to produce for it to gain.
Robert (2009) argues that the importance of international trade for the U.S government is even more noticeable when specific products are brought on to focus. For instance, U.S will have little number of personal computers, no aluminum little coffee if it did not import such good. When the production cost is considered at us it is more than when importing such commodities
How does public policy affect comparative advantage?
In reference to Detroit’s Big it is clearly indicated that American car manufacturers are currently facing difficult times in competing with foreign automakers because of the newly introduced healthcare costs. It is true that if America had a national healthcare policy in place U.S. carmaker would benefit the best comparative advantage. Healthcare cost is among the small cost that the US companies are facing in comparison to their foreign competitors. In addition to healthcare costs, there are differences in wages, retirement benefits, vacation pay, and other employee perks. For a U.S. Company to recruit and retain good talent these programs must be in place.
Secondly, another stumbling object to America’s comparative advantage is the government policies and regulations. It is evident that many regulations have been put in place to assure worker and consumer safety and security, not forgetting that they come by at a cost. For this reason, the tax weight is extremely high for U.S. companies to afford.
Robert (2009) points the U.S. has gained more comparative advantage even though it is difficult for it to beat the production costs. It has dominated with product quality. Many buyer from Americans and foreign countries have gained trust and continued to purchase American automobiles because most makes and models have proved to be more reliable and of high quality. For example the Ford F-Series Truck has been rated number 1 as automobiles highly desirable by consumers in relation to quality and reliability.
Although many components of American cars are manufactured in other countries, it still feels good to purchase an American made product and believe that by doing so you are putting an American to work. As long as U.S. automakers keep making appealing automobiles that consumers want to purchase they will maintain a comparative advantage