. Peter Pundit, an economics reporter, states that theEuropean Union (EU) is inc
ID: 1244007 • Letter: #
Question
. Peter Pundit, an economics reporter, states that theEuropean Union (EU) is increasing its productivity very rapidly inall industries. He claims that this productivity advance is sorapid that output from the EU in these industries will soon exceedthat of the United States and, as a result, the United States willno longer benefit from trade with the EU.
a. Do you think Peter Pundit is correct or not? If not,what do you think is the source of his mistake?
b. If the EU and the United States continue to trade,what do you think will characterize the goods that the EU exportsto the United States and the goods that the United States exportsto the EU?
Explanation / Answer
Peter Pundit is full of it! a) First, what is causing the super-increase in productivity, andwhy is that reason unique to the EU? Unless there is a learningdivide, information leading to productivity increases is verydifficult to keep secret. Second, even if the EU is becoming superproductive, and the U.S. is not, the benefits from trade come fromcomparative advantages (not absolute advantages). The U.S. willalways have a comparative advantage in something. b) Countries will export those goods/services they have acomparative advantage in producing.
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