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Chapter 20: Q8. (page 431)

  1. We see quite a bit of international trade in the real world. And trade is driven by specialization. So why don鈥檛 we see full specialization鈥攆or instance, all cars in the world being made in South Korea, or all the mobile phones in the world being made in China? Choose the best answer from among the following choices.

  1. High tariffs.

  2. Extensive import quotas.

  3. Increasing opportunity costs.

  4. Increasing returns.

Short Answer

Expert verified

The correct option is c) Increasing opportunity costs.

Step by step solution

01

Step 1. Explanation 

The production of goods requires resources which is scarce and limited; this resource has alternative uses. If an economy produces two goods, then to increase the production of one good, the other good production has to be reduced. Thus, opportunity cost is involved; when an economy increases production, the opportunity cost of producing that good also rises. Hence, when a nation goes for complete specialization, all the resources have to be devoted there; thus, the opportunity increases as the resources are taken from one activity to another.

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Most popular questions from this chapter

鈥淭he potentially valid arguments for tariff protection鈥攎ilitary self-sufficiency, infant industry protection, and diversification for stability鈥攁re also the most easily abused.鈥� Why are these arguments susceptible to abuse?

The following hypothetical production possibilities tables are for China and the United States. Assume that before specialization and trade the optimal product mix for China is alternative B and for the United States is alternative U.


China Production Alternatives

Product

A

B

C

D

E

F

Apparel (in thousands)

30

24

18

12

6

0

Chemicals (in tons)

0

6

12

18

24

30


U.S. Production Alternatives

Product

R

S

T

U

V

W

Apparel (in thousands)

10

8

6

4

2

0

Chemicals (in tons)

0

4

8

12

16

20

  1. Are comparative-cost conditions such that the two areas should specialize? If so, what product should each produce?

  2. What is the total gain in apparel and chemical output that would result from such specialization?

  3. What are the limits of the terms of trade? Suppose that the actual terms of trade are 1 unit of apparel for 1陆 units of chemicals and that 4 units of apparel are exchanged for 6 units of chemicals. What are the gains from specialization and trade for each nation?

Suppose that the opportunity-cost ratio for sugar and almonds is 4S 鈮� 1A in Hawaii but 1S 鈮� 2A in California. Which state has the comparative advantage in producing almonds?

  1. Hawaii

  2. California

  3. Neither

Refer to Figure 3.6, page 57. Assume that the graph depicts the U.S. domestic market for corn. How many bushels of corn, if any, will the United States export or import at a world price of \(1, \)2, \(3, \)4, and \(5? Use this information to construct the U.S. export supply curve and import demand curve for corn. Suppose that the only other corn-producing nation is France, where the domestic price is \)4. Which country will export corn; which county will import it?

Which of the following are benefits of international trade?

Choose one or more answers from the choices shown.

  1. A more efficient allocation of resources.

  2. A higher level of material well-being.

  3. Gains from specialization.

  4. Promoting competition.

  5. Deterring monopoly.

  6. Reducing the threat of war.
See all solutions

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