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Chapter 20: Q. 1 (page 492)
True or False: The source of comparative advantage must be natural elements like climate and mineral deposits. Explain.
The statement is False.
There are other sources of comparative advantage for countries other than natural resources.
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What are the two main sources of economic gains from intra-industry trade?
Can a nation鈥檚 comparative advantage change over
time? What factors would make it change?
Table 20.15 shows how the average costs of production for semiconductors (the 鈥渃hips鈥� in computer memories) change as the quantity of semiconductors built at that factory increases.
a. Based on these data, sketch a curve with quantity produced on the horizontal axis and average cost of production on the vertical axis. How does the curve illustrate economies of scale?
b. If the equilibrium quantity of semiconductors demanded is 90,000, can this economy take full advantage of economies of scale? What about if quantity demanded is 70,000 semiconductors? 50,000 semiconductors? 30,000 semiconductors?
c. Explain how international trade could make it possible for even a small economy to take full advantage of economies of scale, while also benefiting from competition and the variety offered by several producers.
Are differences in geography behind the
differences in absolute advantages?
In Japan, one worker can make 5 tons of rubber or
80 radios. In Malaysia, one worker can make 10 tons of rubber or 40 radios.
a. Who has the absolute advantage in the production of rubber or radios? How can you tell?
b. Calculate the opportunity cost of producing 80
additional radios in Japan and in Malaysia. (Your calculation may involve fractions, which is fine.)
Which country has a comparative advantage in
the production of radios?
c. Calculate the opportunity cost of producing 10
additional tons of rubber in Japan and in Malaysia. Which country has a comparative advantage in producing rubber?
d. In this example, does each country have an absolute advantage and a comparative advantage
in the same good?
e. In what product should Japan specialize? In what
product should Malaysia specialize?
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