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Chapter 20: Q. 17 (page 494)

Are differences in geography behind the

differences in absolute advantages?

Short Answer

Expert verified

Yes, the differences in geography are behind the differences in absolute advantages.

Step by step solution

01

Step 1. Meaning of Absolute Advantage.

A country has an absolute advantage when it can produce the same quantity of output at a lower cost or more quantity of output at the same cost.

02

Step 2. Differences in geography.

Yes, the differences in geography are behind the differences in absolute advantages. For example, Saudi Arabia has an absolute advantage in the production of crude oil due to its geographical location. Guatemala has a more suitable climate to grow coffee. Thus, it is true that natural endowment and geographical location influences absolute advantage.

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Most popular questions from this chapter

Consider two countries: South Korea and Taiwan.

Taiwan can produce one million mobile phones per day at the cost of \(10 per phone and South Korea can produce 50 million mobile phones at \)5 per phone. Assume these phones are the same type and quality and there is only one price. What is the minimum price at which both countries will engage in trade?

How does comparative advantage lead to gains from trade?

In Germany, it takes three workers to make one television and four workers to make one video camera. In Poland, it takes six workers to make one television and 12workers to make one video camera.

(a) Who has the absolute advantage in the production of televisions? Who has the absolute advantage in the production of video cameras? How can you tell?

(b) Calculate the opportunity cost of producing one additional television set in Germany and in Poland. (Your calculation may involve fractions, which is fine.) Which country has a comparative advantage in the production of televisions?

(c) Calculate the opportunity cost of producing one video camera in Germany and in Poland. Which country has a comparative advantage in the production of video cameras?

(d) In this example, is the absolute advantage the same as comparative advantage, or not?

(e) In what product should Germany specialize? In what product should Poland specialize?

What is intra-industry trade?

What are the two main sources of economic gains from intra-industry trade?
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