If you have ever played a team sport or worked together on a group project you are probably familiar with the basic principles of comparative advantage. There may be one rock-star athlete that can play any position better than anyone else, but being self-sufficient isn't possible when facing an entire opposing team. It turns out that allowing everyone to concentrate at what they are comparatively best at makes for a stronger team.

We can apply this line of thought to international trade. Some countries are located around the tropics where coffee and cocoa flourishes. It make sense that these countries grow these commodities rather than trying to have countries like Canada attempt to grow their own. Each country is allowed to focus on the things they are "most best" at and exchange them with other countries. In the end, both parties benefit. We end up with more goods produced at a lower cost.

• The United States exports a lot of capital intensive goods (e.g. airplanes, tractors, refined chemicals) and imports a lot of labor intensive goods (e.g. textiles, assembled electronics). As an example, the Apple iPhone is famously "Designed in California" and assembled in China. Using thetheory of comparative advantage, explain why we don't always want to manufacture everything at home in the USA.

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The theory of comparative advantage suggests that countries should specialize in producing goods and ... View the full answer