Economics in a Global Environment Essay Example | Topics and Well Written Essays - 500 words

Economics in a Global Environment - Essay Example By analyzing internal opportunity costs we can define in what these two guys should specialize in order to provide maximum output To identify who should specialize in a particular activity I have calculated the internal opportunity cost for Phil and Frances. For example, if Phil shifts more resources into higher output of phone calls, the opportunity cost of each extra phone call is of financial statement. For Frances the same decision has an opportunity cost of 1/10 of phone calls. Therefore France has a comparative advantage in financial reports. Were Frances to reallocate resources to financial statements, the opportunity cost of one extra financial statement is 10, meanwhile for Phil the opportunity cost is 4 of the phone calls. Thus Phil has a comparative advantage in phone calls (please refer to the Appendix 1) On the other hand the comparative advantage theory is not consistent with the current economic reality. The evidence shows that comparative advantage is human made rather than natural. Many economists argue that there is no such thing as free trade. Countries use industrial strategies and trade tactics in order to create human made comparative advantage, which will guarantee their success in the global economy1. Nowadays, comparative advantage is human made. Natural resources are international commodities and therefore each country can easily acquire them in the market without producing them locally.