Learning Materials
Features
Discover
Chapter 20: Q 23. (page 494)
Does intra-industry trade contradict the theory of
comparative advantage?
This is not right that intra-industry trade contradicts the theory of comparative advantage.
Over 30 million students worldwide already upgrade their learning with 91影视!
All the tools & learning materials you need for study success - in one app.
Get started for free
From earlier chapters you will recall that technological change shifts the average cost curves. Draw a graph showing how technological change could influence intra-industry trade.
France and Tunisia both have Mediterranean
climates that are excellent for producing/harvesting
green beans and tomatoes. In France, it takes two hours for each worker to harvest green beans and two hours to harvest a tomato. Tunisian workers need only one hour to harvest the tomatoes but four hours to harvest green beans. Assume there are only two workers, one in each country, and each works 40 hours a week.
a. Draw a production possibilities frontier for each
country. Hint: Remember the production
possibility frontier is the maximum that all workers can produce at a unit of time which, in this problem, is a week.
b. Identify which country has the absolute
advantage in green beans and which country has
the absolute advantage in tomatoes.
c. Identify which country has the comparative
advantage.
d. How much would France have to give up in
terms of tomatoes to gain from trade? How much
would it have to give up in terms of green beans?
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?
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.
What do you think about this solution?
We value your feedback to improve our textbook solutions.
Explanations 
Textbooks 
Flashcards 
91影视 AI 
Notes 
Study Plans 
Study Sets 
Find a degree 
Magazine