Comparative Advantage In Electronic Equipment And Copper Ore

Comparative advantage is the term that used to explain the ability of one nation or country to produces either it is goods or service using the cheaper opportunity cost compare with the others competitor, in this case, is other nation or country. In order to get a better understanding regarding comparative advantage, there are several important points that needs know first such as the history of comparative advantage, opportunity cost, and a trade-off. The term of comparative advantage firstly introduced in nineteenth-century by an economist named David Ricardo. This approach used by David Ricardo in order to overcome the wheat imported problem in England. Back to nineteen century in England, the government set restrictions regarding wheat that imported to England and based on Ricardo’s perspective, it doesn’t make sense at all. The wheat that imported to England was cheap with good quality and grow in the countries that have fit climate and soil. Ricardo argued rather than England government restrict wheat import, England must focus on exporting the things that related to machinery and skilled labor in order to gain more income (amadeo, 2018).

Besides talking about history, in this essay also talking about opportunity cost and trade-off that related to each other. Opportunity cost simply is the cost that should bear because of choosing an opportunity and on the other hand ignoring, rejecting or not choose other opportunities. This situation happened because the subject facing scarcity while at the same time offered choices (Kasali, 2015). While trade-off based on the business dictionary is a method that reducing the production of one or even more commodity because of incapability of producer but in return focusing on commodities that can give maximize income and effectiveness (businessdictionary). Based on those explanation, opportunity cost can amount the trade-off, how a nation although facing trade-off but still can gain benefit from comparative advantage by buying product either it is goods or service from other nation and can overcome the disadvantages.

Looking back to the study case in the Asia-pacific region, how Indonesia and people’s republic of China having cooperation in commodities such as copper ore and electronic equipment. Indonesia considers as one of the biggest exporters from China, that consist of 22.8% of total china’s imports all around the world that amounted up to $35.8 billion or equal with 50 trillion in rupiah. Moreover, the biggest commodity that imported to Indonesia is electronic equipment with total money $7.9 billion and followed by other commodities such as plastics, vehicles, machinery, iron and steel, vegetables, inorganic chemicals, organic chemicals, man-made filaments, and iron or steel product (worldrichestcountries).

While on the other side, the inability of the People’s Republic of China to producing copper ore that put China in unfavorable conditions. In international trade, China facing the highest deficit in terms of exporting and producing copper ore. Based on data provided by world stop exports in 2017, China facing deficits up to $26.1 billion. While in this position, Indonesia has the ability to produce more effectiveness copper ore rather than China. Indonesia in 2017, had cover around 5,9% of world’s total copper ore export with total valued up to $3.4 billion with the second largest copper mine named Grasberg Mine located in Papua. Besides that, copper ore is 4th biggest export commodity below palm oil, coal briquettes, petroleum gas, and gold at the 5th position (Pines). Based on a case study, it shows that People's Republic of China has weaknesses or inability to produce natural resources, in this case, copper ore but has the advantage of producing finished goods such as electronic equipment. Viewed from the other side, Indonesia is able to provide natural resources but is unable to produce electronic equipment effectively so it needs to import from China.

The opportunity cost that paid by is Indonesia to produce electronic equipment because Indonesia has more focus on producing copper ore on the other side, the opportunity cost that has been paid by the Republic of China is producing copper ore because of it’s more beneficial for China will focus on producing electronics equipment. Because the trade-off can be measured through opportunity costs, making the trade-offs carried out by the two countries worth it. With the Republic of China people's doing trade-offs in copper ore, reducing ore producing copper ore also prevented more deficits faced by China if China still gives copper ore and give it more advantage if China can focus on electronic equipment that can bring in a substantial income with high efficiency. In vice versa, Indonesia doing trade-offs in electronic equipment because the inability of Indonesia itself to produce effective electronic equipment.

Bibliography

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