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Explain why the United States imports oil, despite the fact that there is oil in the United states

Economics Dec 17, 2020

Explain why the United States imports oil, despite the fact that there is oil in the United states. Use the principle of comparative advantage to defend your answer.

Expert Solution

The U.S. imports oil even though it produces oil because the U.S. is trying to gain from trade. The U.S. produces numerous products and trades them internationally but the volume of trade is controlled to maximize economic output based off of labor and capital abundance. Comparative advantage teaches that countries specialize in products and trade the products to increase output even if they can produce the product for a cheaper price than the other country. The U.S. trades in bundles not individualized products, this means that the U.S. restricts the amount of oil it produces and increases the amount of other products it produces where it has a comparative advantage. Then when the U.S. trades the consumption bundle it can make an increased output for the entire economy not just the oil industry. The U.S. could import oil to change the labor productivity of the oil industry and other industries. If the U.S. imported oil it could decrease its production of oil and send the labor force to other industries to increase the labor productivity in other industries and decrease their costs. This can also increase economic output.

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