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Chapter 33: Q. 28. (page 804)

Can a nation鈥檚 comparative advantage change over time? What factors would make it change?

Short Answer

Expert verified

Nation's comparative advantage change over time with certain important factors.

Step by step solution

01

Step 1. Meaning of comparative advantage.

The ability to produce a product at a relatively lower cost or to produce a higher quantity at the same cost is known as absolute advantage. While, the ability to produce at a realtively lower opportunity cost is known as competitive advantage.

02

Step 2. Nation's comparative advantage.

Basically, a nations' comparative advantage can change over time if it acquires efficiency in the production of a good or services due to technological and or social changes.

03

Step 3. Important factors that result into change in comparative advantage.

a) Geographical diversity.

b) Tradition.

c) Productivity Differences.

d) Technology.

e) Human skills.

f) Product life cycle.

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Most popular questions from this chapter

Brazil can produce 100 pounds of beef or 10 autos. In contrast the United States can produce 40 pounds of beef or 30 autos. Which country has the absolute advantage in beef? Which country has the absolute advantage in producing autos? What is the opportunity cost of producing one pound of beef in Brazil? What is the opportunity cost of producing one pound of beef in the United States?

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.

Do consumers benefit from intra-industry trade

Does intra-industry trade contradict the theory of comparative advantage?

Why might intra-industry trade seem surprising from the point of view of comparative advantage?
See all solutions

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