Exports occur whenever there is excess supply domestically at the
world price. The domestic demand and supply curves are D and S,
respectively. The domestic price in the absence of foreign trade is
produced and consumed domestically. The world price of is higher
than At is demanded while is supplied domestically. The
excess of the domestic supply over the domestic demand is exported.
Now consider a situation in which international trade exists, and the
world price of lumber is If the world price is higher than the no-trade
domestic price there will be an excess of Canadian supply over
Canadian demand. This excess domestic supply will be Canada’s exports.
In Figure 32-5 , the amount of Canada’s lumber exports at the world
price is
What is the role of comparative advantage in this analysis? We have said
that Canada will export lumber if the world price exceeds Canada’s no-
trade domestic price. Note that in a competitive market the price of the
product reflects the product’s marginal cost, which in turn reflects the
opportunity cost of producing the product. That Canada’s no-trade price
for lumber is lower than the world price reflects the fact that the
opportunity cost of producing lumber in Canada is less than the
opportunity cost of producing it in the rest of the world. Thus, by
exporting goods that have a low no-trade price, Canada is exporting the
goods for which it has a comparative advantage.
Countries export the goods for which they are low-cost producers. That is, they export goods
for which they have a comparative advantage.pd
Qd pw
pd. pw,Q 1 Q 2
pw.^1
(pw>pd),
Q 2 −Q 1.