Question

In 1975, wage levels in South Korea were roughly 5% of those in the United States. "If the United States had allowed Korean goods to be freely imported into the United States at that time, this would have caused devastation to the standard of living in the United States, because no producer in this country could possibly compete with such low wages." Discuss this assertion in the context of the Ricardian model of comparative advantage.

Answer 1

Answer: Explanation:

The Ricardian model of comparative advantage states that when two countries trade, they may benefit from each other if each country exports the product in which it has a comparative advantage - exporting goods where output per worker is higher. Also, the model stated that comparative advantage is probably as a result of labor productivity differences.

In this context, In spite of relative wage levels, it shows that the United States would be able to provide its people with a higher standard of living than would be possible without trade with the South Korea. Furthermore, low productivities is usually caused by low wages.

Answer 2

This assertion is not true according to the theory of course comparative advantage.

Step-by-step explanation:

According to the theory of comparative advantage, both countries would benefit if they specialized on those goods they can produce on lower opportunity costs compared to other goods.

Despite relative wage levels, the people of the United States would be provided with better living standards than without trade. Low wage causes low productivity. Engaging in trades is of great benefits to every country.