and potash, for which Canada is one of the world’s major suppliers, and
demand in the rest of the world must be satisfied partly by exports from
Canada. Finally, there are some products, such as concrete blocks and
crushed stone, that are so expensive to transport that every country
produces approximately what it consumes.
Our interest in this section is with the vast number of intermediate cases
in which Canada is only one of many producers of an internationally
traded product, as with beef, oil, copper, wheat, lumber, and newsprint.
Will Canada be an exporter or an importer of such products? And what is
the role played by comparative advantage?
The Law of One Price
Whether Canada imports or exports a product for which it is only one of
many producers depends to a great extent on the product’s price. This
brings us to what economists call the law of one price.
The law of one price states that when a product is traded throughout the entire world, the
prices in various countries (net of any specific taxes or tariffs) will differ by no more than the
cost of transporting the product between countries. Aside from differences caused by these
transport costs, there is a single world price.Many basic products—such as wheat, oil, lumber, paper, copper wire,
steel pipe, iron ore, and computer RAM chips—fall within this category.
The world price for each good is the price that equates the quantity
demanded worldwide with the quantity supplied worldwide. The world