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Jamaica is a poor country where productivity in producing all goods is lower than the U.S....

Jamaica is a poor country where productivity in producing all goods is lower than the U.S. In this situation, will the U.S. trade with Jamaica?

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Answer #1

Productivity is less in all goods in Jamaica implies that USA has an absolute advantage in all goods. But this does not mean that US can produce all goods. Any country would have limited resources and cannot produce all goods. This leads to the concept of comparative advantage. Comparative advantage means the country would produce the good in which it has the minimum opportunity cost. In this way the countries can produce the goods in which they have comparative advantage and can trade with other countries.

Same way Jamaica can also produce the good in which it has comparative advantage even when it has an absolute disadvantage in all the goods and trade with USA.

Hence whenever trading we see comparative advantage and not absolute advantage.

(You can comment for doubts)

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