Question

Many countries import considerable amounts of goods and services from other countries. Yet economists argue that a nation can enjoy a high standard of living only if it can produce a large quantity of goods and services itself. Can you reconcile these two facts?

Answer 1

Answer:

Trade makes everyone better off. Specializing in production of a good in which a country have absolute and/or comparative advantage makes a country move towards its optimum output level and efficiency. Thus, it can export the good it specializes in producing and import a good it is not specialized to produce. This makes both the countries gain. Thus, though the US imports a substantial amount of goods, it is important to consider net exports as the criterion to judge the standard of living