shown in Figure 32-6 , the world price of RAM chips is below the
Canadian no-trade price. At this low world price, domestic demand is
larger and domestic supply is smaller than if the no-trade price had ruled.
The excess of domestic demand over domestic supply is met by imports.
Again, this analysis can be restated in terms of comparative advantage.
The high Canadian no-trade price of RAM chips reflects the fact that the
production of RAM chips has a higher opportunity cost in Canada than
elsewhere in the world. This high cost means that Canada has a
comparative disadvantage in RAM chips. So Canada imports goods for
which it has a comparative disadvantage.
Countries import the goods for which they are high-cost producers. That is, they import goods
for which they have a comparative disadvantage.1 If the world price is stated in terms of some foreign currency (as it often is), the price must be
converted into Canadian dollars by using the current exchange rate between the foreign currency
and Canadian dollars.