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Chapter 19: Q 12. (page 461)

How does comparative advantage lead to gains

from trade?

Short Answer

Expert verified

They can gain a comparative advantage by following some rules of comparative advantage.

Step by step solution

01

Step 1. Definition

Comparative advantge refers to the situation when an individual, region, or a nation, can produce a certain good at a comparatively lower opportunity cost than others.

02

Step 2. Explanation

The countries or individuals can gain from comparative advantage when they upgrade their skills and specialize in their comparative advantage. When they do that, their productivity becomes higher and in turn, total production is also higher. And as we know that gains will come when we produce higher than others and from ourselves.

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Most popular questions from this chapter

True or False: The source of comparative advantage must be natural elements like climate and mineral deposits. Explain.

Look at Table 19.9. Is there a range of trades for

which there will be no gains?

Under what conditions does comparative advantage

lead to gains from trade?

Are differences in geography behind the

differences in absolute advantages?

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 12 workers to make one video camera.

  1. 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?

  2. 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?

  3. 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?

  4. In this example, is absolute advantage the same as comparative advantage, or not?

  5. In what product should Germany specialize? In what product should Poland specialize?
See all solutions

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