An Increase in Consumption

For the fourth consecutive year, Americans have increased foreign imports. At the same time, exports from the United States have also increased. In 2005, exports from the United States increased to 1.27 trillion in dollars, a 10.4% increase from 2004. The number of imports rose 12.9% to almost 2 trillion dollars. This is an all time high for the number of goods America has imported. These figures indicate a large increase in the number of goods Americans and their trading partners are consuming.
This example illustrates David Ricardo’s idea that specialization and trade allow individuals and countries to expand their consumption beyond their production possibilities frontier. With the United States increasing both its imports and exports, it is obvious that many people are consuming more goods. This is in large part due to trade since Americans are consuming more foreign goods than ever. The majority of imported goods consist of automobiles, electronics, and clothes. The foreign countries we import these from have a comparative advantage in producing these goods. This means the opportunity cost of producing the goods overseas is lower than in America. While America may hold an absolute advantage in producing many goods, it usually holds a comparative advantage in the production of more specialized goods. The United States holding a comparative advantage in the production of these specialized goods explains why many goods we consume are produced overseas.