The concept of scarcity is fundamental to the study of economics and instituting plausible economic policies. Natural resources are not limitless and are located in different locations. Countries, therefore, have to make informed choices about what to produce to save costs while maximizing welfare. Frank A. Wolak, the director of the Energy and Sustainable Development program and an economics professor at Stanford University, explains the scarcity-choice relationship in his article titled “Our Comparative Advantage.” This article is published in The New York Times. This article explores the case for free trade using the concepts of comparative advantage and opportunity cost thus reducing costs while maximizing welfare. The author uses the U.S as a case study and explains how she leverages her scarcity of unskilled labor force and takes advantage of her comparative advantage on technical equipment and skilled manpower. The author also uses the case of India and China to show the advantage of being abundantly resourced in the unskilled workforce
The author starts by stating that international trade is most beneficial when there are limited resources and competing needs. The United States, for example, as illustrated by the author is well resourced in two key factors: technically sound equipment and an educated labor force. As such, the nation can produce goods and services requiring an abundance of provision of the aforementioned factors with relative ease. Contrastingly, the US has a scarcity of unskilled labor force. Per Wolak, this scarcity puts the US in a disadvantaged position when it comes to producing goods and services requiring an abundance of unskilled labor.
The author also presents a case for nations abundantly supplied with unskilled labor such as China and India. According to him, these countries have scarcity in the supply of technically sound equipment and skilled labor. They are hence better positioned in the mass manufacture of labor-intensive goods and services. Wolak illustrates that this resource makes China and India more ideal for big multinationals undertaking mass production. These multinationals consider the concept of scarcity in their production decisions. Per the article, they take advantage of the US’s comparative advantage and do their research and development, idea formulation, and initial production in the US. Afterward, they shift production to China and India for mass production hence taking advantage of the abundant labor supply.
Wolak’s article presents a case that favors free trade due to scarcity. However, it fails to consider unethical factors that contribute to the cheaper cost of labor in India and China. These factors include low wages below the marginal product of labor and few policies on laborers’ health and safety (Moretti, 2013). Propagating for international trade is similar to supporting these unethical practices.
On the positive side, the article illustrates several pointers that are in line with economic theory as taught in the course material specifically the concept of scarcity, choice, opportunity cost, and comparative advantage. The author advocates for free trade because countries have different scarcities and comparative advantages. This concept is well illustrated in the course material which teaches that the ability of scarcity forces countries to make choices based on their opportunity costs and comparative advantages. It is these choices that create the need for free trade since no single country is self-sufficient.
The decisions made by companies regarding were to produce are also well explained in the course material. The material advances that these decisions should be pegged on costs. As such, it is more favorable to produce in countries with a lesser opportunity cost. This explains why the article advocates for initially producing in the US and then shifting production to India and China. Moreover, the decisions regarding what to produce is also dependent on the availability of resources. The course material also encourages countries to produce goods according to their resource endowments. This is further highlighted by Wolak in his article when he encourages China and India to specialize in the production of labor-intensive goods and services.
Wolak’s article is appropriate for economics scholars, government agencies that influence production decisions, and multinational organizations. The article can be used to influence production choices and reduce costs. Moreover, it can be used to illustrate economics theory taught in learning institutions since it presents real facts. The merits of the article include simplicity and the use of easily relatable examples such as the US, India, and China. On the contrary, the demerits of the article include the lack of balance since it fails to recognize inherent unethical business practices. It also does not include any statistical data to support its claims.
Wolak’s article clearly illustrates the necessity of international trade in taking advantage of different countries’ comparative advantages. However, the author ignores significant unethical practices that are propagated by his stance. The overall positive effect of scarcity and trade remains to be accurately seen in the presence of unethical practices. As such more studies should be undertaken in this area that will factor in the negative effect of unethical trade practices.
Buechner, M. N. (2014). A comment on scarcity. Journal of Philosophical Economics, 8(1), 2-19.
Kurzban, R., Duckworth, A., Kable, J. W., & Myers, J. (2013). An opportunity cost model of subjective effort and task performance. Behavioral and brain sciences, 36(6), 661-679.
Moretti, E. (2013). Real wage inequality. American Economic Journal: Applied Economics, 5(1), 65-103.
Wolak, F. A. (2011, January 18). Our Comparative Advantage. The New York Times. Retrieved from: https://www.nytimes.com/roomfordebate/2011/01/18/can-the-us-compete-with-china-on-green-tech/our-comparative-advantage