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Chapter 20: Q 24. (page 494)
Do consumers benefit from intra-industry trade?
Of course yes consumers are benefitted from Intra industry trade.
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If trade increases world GDP by 1% per year,
what is the global impact of this increase over 10 years? How does this increase compare to the annual GDP of a country like Sri Lanka? Discuss. Hint: To answer this question, here are steps you may want to consider. Go to the World Development Indicators (online) published by
the World Bank. Find the current level of World GDP in constant international dollars. Also, find the GDP of Sri Lanka in constant international dollars. Once you have these two numbers, compute the amount of the additional increase in global incomes due to trade and compare that number to Sri Lanka鈥檚 GDP.
You just overheard your friend say the following: 鈥淧oor countries like Malawi have no absolute advantages. They have poor soil, low investments in formal education and hence low-skill workers, no capital, and no natural resources to speak of. Because they have no advantage, they cannot benefit from trade.鈥� How would you respond?
Are the gains from international trade more likely to be relatively more important to large or small countries?
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?
How does comparative advantage lead to gains from trade?
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