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timer Asked: Jan 21st, 2015

Question description

Most people agree that specialization along lines of comparative advantage and then trade is beneficial. Adam Smith’s statement in The Wealth of Nations that no “prudent master [will] make at home what it will cost him more to make than to buy” is very thought provoking.

Consider outsourcing where American firms have foreign firms produce certain goods or services for them instead of producing them in the United States. Why is this a problem if the foreign firms in fact have comparative advantage?  If trade along lines of comparative advantage allows U.S. companies to buy these goods and services more cheaply than they can produce them, then why should we want to restrict trade in them?

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