In all the examples given, when calculating relative efficiencies, we always calculate using hours of labor. But does not some account have to be taken of the "value" of the product being produced? For example, if one country produces carpet-rugs with the greatest relative efficiency while another country produces wheat with the greatest relative efficiency, the nation that makes the carpet-rugs may not produce enough to trade for all the wheat it needs.

One may then argue that if the rug producing country cannot sell enough rugs to trade for wheat, then it may lower the price until they sell enough rugs. At that point, it may be more efficient for them to switch to wheat production. But in this argument, clearly price (currency) must be taken into account. That is, we cannot focus only on labor hours without also discussing market price. NEAS: Do you agree with this?

[NEAS: Yes. Landsburg speaks of the tastes of different countries. Iran may produce carpet-rugs with great efficiency and its people may want carpet-rugs more than wheat. But if no other country wants carpet-rugs, its relative efficiency does not affect trade.

Landsburg discusses the market price of goods with an Edgeworth diagram, but this section of the text is not on the syllabus for this course. Actual economic analysis must deal with both market prices and relative efficiencies.]