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  • Mathieu Provencher

Inputs vs. Outputs, don't confuse them

Hi Guys! The United States of America recently became the biggest producer of crude oil in the world, even higher than Saudi Arabia!

Does it mean that they won't have to import gasoline anymore? Specialists are now talking about the USA having surpluses of crude oil, what a change!

Be careful: producing enough crude oil does not in any way guarantee that you have enough gasoline. In fact, the USA had access to plenty of crude oil for the longest time but they were still importing gasoline due to their limited processing capacity (you have to change that oil into gasoline).

Even if they could manufacture enough gasoline, it might still make sense to buy some and sell some because of the size of the USA. Transportation costs might make it more profitable to still import and export the same product. We call this intra-industry trade, which came directly against Ricardo's theory of comparative advantages.

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