Boy am I glad I never took this course.
Jinx, now you’re confusing Macro and Micro. Inflation is a macro topic, comparative advantage is micro.
It’s not a question of what products the country currently produces in gluttonous quantities. What matters is what else they could be producing using the same resources relative to what the other country could be producing using its own respective resources. It’s all about the opportunity cost of NOT producing something else.
In your example, if you proved that the pineapple country should be producing something else, then that means the other country must be worse at making that something else than it is at making pineapples.
With the collective manpower and capital under its control, the United States could produce tons more running shoes than Indonesia can right now. But conversely, if Indonesia devoted all of its labor and capital towards the production of microchips, it still wouldn’t be able to produce as many microchips as the U.S. currently does. It’s the ratios that matter.
If were to make that switch, the world would have too many pairs of shoes and not enough microchips. Assuming that we all need to balance our consumption of one with consumption of the other, then we would be worse off under those circumstances than we are right now. Under the current plan, everyone benefits because we maximize our relative use of both products.
Go talk to David Ricardo. http://xayne.freeservers.com/
Let me say this again. I like this message board because there are obviously a lot of intelligent people out here who (for various reasons) enjoy sharing their collective knowledge with other people and learning something new in the process. Just because you don’t understand something doesn’t mean it’s ridiculous - that’s whole point of wanting to new things, to understand them and to be able to make educated assumptions and form educated opinions!
Let me try to explain comparative advantage in another way:
Let’s say that for every hour I work, I can harvest 10 Bananas, because I’m really good at it. Or, I can harvest 5 pinneapples, because I’m not as good at it.
Now, let’s say that you can harvest 4 pinneapples, but only 1 Banana, in that same hour. Should I trade with you? Remember, I can make more pineapples than you can, so why should I trade my Bananas for YOUR pineapples?
Simply, because even though I’m better at making pineapples than you are, I’m MUCH better at making bananas. Let’s say we don’t trade, and we each spend 100 hours making pineapples and Bananas, 50 hours each. At the end of the 100 hours, I’ll have 500 Bananas, and 250 pineapples. You’ll have 200 pineapples, but only 50 bananas.
Now, suppose I spend my whole time making bananas, and you spend yours making pineapples, and we make a trade. Before, our combined production was 550 bananas, and 450 pineapples. By each of us doing what we do best and trading to give each other what we need, we wind up with 1000 bananas and 400 pineapples. If these things have equal value, then our free trade agreement improved our wealth by 400 units between us.
So, even though I’m better than you at making Pineapples, it’s still in my best interest to trade with you so we can each concentrate on what we do best.