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Chapter 33: Q. 18. (page 804)
Why does the United States not have an absolute advantage in coffee?
Because of the adverse climate conditions which leads to quite expensive and difficult to engage in coffee cultivation, the United states do not have an absolute advantage in coffee.
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You just got a job in Washington, D.C. You move into an apartment with some acquaintances. All your roommates, however, are slackers and do not clean up after themselves. You, on the other hand, can clean faster than each of them. You determine that you are 70% faster at dishes and 10% faster with vacuuming. All of these tasks have to be done daily. Which jobs should you assign to your roommates to get the most free time overall? Assume you have the same number of hours to devote to cleaning. Now, since you are faster, you seem to get done quicker than your roommate. What sorts of problems may this create? Can you imagine a trade-related analogy to this problem?
Review the numbers for Canada and Venezuela from Table 19.12 which describes how many barrels of oil and tons of lumber the workers can produce. Use these numbers to answer the rest of this question.
a. Draw a production possibilities frontier for each country. Assume there are 100 workers in each country. Canadians and Venezuelans desire both oil and lumber. Canadians want at least 2,000 tons of lumber. Mark a point on their production possibilities where they can get at least 3,000 tons.
b. Assume that the Canadians specialize completely because they figured out they have a comparative advantage in lumber. They are
willing to give up 1,000 tons of lumber. How much oil should they ask for in return for this lumber to be as well off as they were with no trade? How much should they ask for if they want to gain from trading with Venezuela? Note: We can think of this 鈥渁sk鈥� as the relative price or trade price of lumber.
c. Is the Canadian 鈥渁sk鈥� you identified in (b) also beneficial for Venezuelans? Use the production possibilities frontier graph for Venezuela to show that Venezuelans can gain from trade.
What is splitting up the value chain?
Is it possible to have a comparative advantage in the production of a good but not to have an absolute advantage? Explain.
Look at Table 33.9. Is there a range of trades for which there will be no gains?
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