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Chapter 19: Q 14. (page 462)

What are the two main sources of economic gains

from intra-industry trade?

Short Answer

Expert verified

Specialization and economies of scale.

Step by step solution

01

Step 1. Definition

Exchnage of similar products belonging to the same industry is known as intra-industry trade. In other words, imports and exports of same type of products.

02

Step 2. Explanation

There are two main sources of economic gains from Intra industry trade:

1. specialization

2. economies of scale

Firms also benefits by splitting up the value chain and operating different stages of production in different countries of the world at a lower cost.

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Most popular questions from this chapter

Look at Exercise 19.2. Compute the opportunity

costs of producing sweaters and wine in both France and Tunisia. Who has the lowest opportunity cost of producing sweaters and who has the lowest opportunity cost of producing wine? Explain what it means to have a lower opportunity cost.

Why might a low-income country put up barriers

to trade, such as tariffs on imports?

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?

What factors does Paul Krugman identify that

supported expanding international trade in the 1800s?

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?
See all solutions

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