[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

10,000 more garments can be produced. If the United States at the same time
increases its airplane production by 100 from E to E′′, it will produce only 1,000
fewer garments. In the new situation, the world production of airplanes is
unchanged (100 + 300 = 200 + 200), but world production of garments has increased
by 9,000 (the difference between 20,000 + 9,000 and 10,000 + 10,000). So long as
the production trade-offs differ—that is, so long as the marginal rates of transformation
differ—it pays for China to specialize increasingly in textiles, and the
United States to specialize increasingly in airplanes. Notice that the analysis
depends on knowledge only about the production trade-offs. We do not need to
know how much labor or capital is required in either country to produce either
airplanes or garments.
Though it pays countries to increase the production and export of goods in which
they have a comparative advantage and to import goods in which they have a comparative
disadvantage, doing so may not lead to complete specialization. Thus the
United States continues to be a major producer of textiles, in spite of heavy imports
from the Far East. Its engagement in this industry does not violate the principle of
comparative advantage: not all textiles require the same skill and expertise in manufacturing.
While China may have a comparative advantage in inexpensive textiles,
the United States may have a comparative advantage in higher-quality textiles. At
the same time, the comparative advantage of other countries is so extreme in producing
some goods—TVs and VCRs, for example—that it does not pay for the United
States to produce them at all.
COMPARATIVE ADVANTAGE AND
SPECIALIZATION
To see the benefits of specialization, consider the pencil. A tree of the right kind of
wood must be felled; it must be transported to a sawmill, and there cut into pieces
that can be further processed into pencil casings. Then the graphite that runs through
the pencil’s center, the eraser at its tip, and the metal that holds the two together
must each be produced by specially trained people. The pencil is a simple tool. But
to produce it by oneself would cost a fortune.
Why Specialization Increases Productivity Specialization increases
productivity, thereby enhancing the benefits of trade, for three reasons. First, specializing
eliminates the time it takes a worker to switch from one production task
to another. Second, by repeating the same task, the worker becomes more skilled
at it. And third, specialization creates a fertile environment for invention.
Dividing jobs so that each worker can practice and perfect a particular skill
(called the division of labor) may increase productivity hundreds or thousands of
times. Almost anyone who practices activities—cooking, writing, adding a column
of numbers, and so on—will be quite a lot better at them than someone who has not
practiced. Similarly, a country that specializes in producing sports cars may develop
a comparative advantage in their manufacture. With its relatively large scale of production,
it can divide tasks into separate assignments for different people; as each
becomes better at his own tasks, productivity is increased.
428 ∂ CHAPTER 19 INTERNATIONAL TRADE AND TRADE POLICY