What’s the benefit to institutions like the European Union of having poorer states join?

Question

How do less economically wealthy states help institutions like the European Union and why are they needed?

Edit: apologise for the awfully written title

In: 12

Answer 1

**”The Miracle of Trade” and Comparative Advantage**

It is beneficial to trade, even with less capable countries.

Suppose we model countries as individuals on a desert island. There is the powerful, wealthy, capable country that we symbolize as Henry Cavill and the weak, incapable country we symbolize as… Alex Jones. In order to survive on the desert island they need to obtain food and water, so the more food and water the better. Food is found in the form of gathering scorpions and water found in the form of squeezing out cactus plants.

Cavill is better at everything than Jones. Cavill can gather 40 scorpions or squeeze out 20 cactus in a day. Jones on the other hand can only squeeze 6 cactus or gather 2 scorpions. The aim for both is to have some of both scorpions and squeezed cactus.

Now for Cavill he can gather scorpions at twice times the rate he can squeeze cactus. Deciding to squeeze a cactus in essence costs him 2 scorpions he could otherwise catch. For Jones he stinks at everything but slightly less at gathering cactus than catching scorpions. For him gathering a scorpion costs him 3 squeezed cactus. It would therefore benefit Jones to trade a cactus to Cavill for a scorpion; Jones is getting a scorpion for a third the cost of doing it himself! Similarly it benefits Cavill to accept such a trade because he would need to give up catching 2 scorpions to get a cactus himself, so trading one for one is great!

Instead of trying to gather both cactus and scorpions, Cavill can go for scorpions all day and then trade 3 scorpions to Jones for 3 squeezed cactus! Instead of having 34 scorpions and 3 squeezed cactus he has 37 scorpions and 3 squeezed cactus, a 3 scorpion gain!

Similarly Jones can go straight to squeezing cactus and trade the 3 cactus to Cavill. Jones couldn’t get 3 scorpions even if he tried all day, but with this trade he gets 3 scorpions plus 3 squeezed cactus left over!

So you see trading with less capable countries can be an overall benefit for both parties even if one is just better at making stuff in general.