Options:
A.His argument is incorrect because the United States should free up resources to produce the goods in which it has the comparative advantage.
B.His argument is incorrect because China does not produce textiles.
C.His argument is incorrect because the United States textile industry is not more efficient. The U.S. textile industry produces its goods at a lower opportunity cost than in China.
D.None of the above. Buchanan's argument is correct.
Answer:
A
Explanation:
The whole idea behind trade is that a country can specialize in the production of the goods and services that it produces more efficiently and that they hold a comparative advantage in their production.
Buchanan's error is that he doesn't understand that resources are limited, and that includes all the factors of production. When a company produces a good, it is using factors of production that will not be able to produce other goods (opportunity cost of producing the good). If you are going to produce a certain amount of goods that you plan to export to other countries, you will be using resources that could produce other goods, therefore you must produce the goods that generate the highest benefits.
For example, Ford builds large pickups in the US, but it doesn't produce small cars because it can earn a much higher profit by selling a pickup than by selling a small car. If instead of producing around 800,000 pickups per year, Ford had to produce 400,000 pickups and 400,000 small cars, it would be making a smaller profit. It doesn't matter if ford's cars are good or bad, what matters is what products generate the largest profits.
