Cocktail Party Economics: Comparative Advantage And The CTFA

Comparative Advantage and the CTFA

In most countries, high levels of domestic production are a positive thing.

Jobs are created and the country’s overall financial position is strengthened.

However, international trade is key for a country to optimize its economic position.

This optimization occurs through comparative advantage. Although a country may be able to produce certain goods or services more efficiently than another country, it is still more economically effective to specialize in a certain good or service and trade with another country. Eveline Adomait and Richard Maranta present this idea in the book Cocktail Party Economics “Whoever has the lowest opportunity cost in a particular activity has comparative advantage in that activity”

When countries impose trade barriers they remove the incentive for trading “The problem with protectionism is that once we level the playing field, there is no benefit to trade”(Pg.

58). The Canada EU trade deal has been met with protests from unions and other opposing groups. The protestors believe that the trade agreement will lead to lowered standards of labour, environmental practices, and public health. The concern for a lower standard of labour and the loss of jobs is a heated topic among those in the workforce. Outsourcing the production of goods will cause workers to lose their jobs and force them into other job positions or professions. However, if it is significantly more costly to produce a specific good domestically, it is more beneficial to society to outsource. The effect on the consumer must also be taken into consideration “Domestic producers that compete with importing firms will gain from protectionism, but the consumer of those products will end up losing”(Pg 59).

By forcing domestic production through protectionism the cost of these goods will increase, which will cause the demand to decrease. From an economic perspective this is a costly

The article also talks about the different perspectives of the countries involved in this deal and how they vary. Stronger economic countries like Germany were more keen to sign the deal, while smaller countries like Austria and Belgium had other ideas about it. These smaller countries believe that they require more domestic production in order to further grow their economy. Although protectionism is usually a bad thing for the consumer, it can have its economic benefits. Temporary protectionism can allow for a country to increase its domestic production and grow to the levels of its competitors. This form of protectionism helps to create future jobs and remove the need for unnecessary trading.

Temporary protectionism directly affects comparative advantage “These countries develop a comparative advantage where none existed, and this new comparative advantage becomes a source of wealth for those countries” (Pg. 60). Certain smaller countries from the EU appose the idea of free trade with Canada because they want to focus on their domestic production.

Although there are both pros and cons to free trade, it is an overall